Kent Co., a division of National Realty, Inc., maintains escrow accounts and pays real estate taxes for National’s mortgage customers. Escrow funds are kept in interest-bearing accounts. Interest, less a 10% service fee, is credited to the mortgagee’s account and used to reduce future escrow payments. Additional information follows:


Escrow accounts liability, 1/1/06

$ 700,000

Escrow payments received during 2006


Real estate taxes paid during 2006


Interest on escrow funds during 2006


What amount should Kent report as escrow accounts liability in its December 31, 2006 balance sheet?

  1. $510,000
  2. $515,000
  3. $605,000
  4. $610,000