Ralph owns a building that he is trying to lease. Ralph is a calendar-year, cash-method taxpayer and is trying to evaluate the tax consequences of three different lease arrangements. Under lease 1, the building rents for $650 per month, payable on the first of the next month, and the tenant must make a $650 security deposit that is due at the time of lease signing and will be refunded at the end of the lease. Under lease 2, the building rents for $7,150 per year, payable at the time the lease is signed, but no security deposit is required. Under lease 3, the building rents for $650 per month, payable at the beginning of each month, and the tenant must pay a security deposit of $1,300 that is to be applied toward the rent for the last two months of the lease.

a.What amounts are included in Ralph's gross income this year if a tenant signs lease 1 on December 1 and makes timely payments under that lease (security deposit paid on December 1 of this year, lease starts December 1 of this year, and the first rent payment is made on January 1 of next year)?