Final answer:
The lease term for Gilbert Company at the beginning of the lease is five years, which is the initial noncancelable lease period. Leasehold improvements with value after five years do not extend the initial lease term. After the lease expires, the company has the flexibility to renew or relocate.
Step-by-step explanation:
The number of years in the lease term as determined at the beginning of the lease for Gilbert Company, which leased office space for a noncancelable term of five years with a five-year renewal option, is the initial noncancelable lease period. Since the renewal option is not guaranteed and depends on the company's decision at the end of the initial lease term, the lease term to consider at the beginning is the five-year noncancelable period.
Improvements made to the leased space that will retain significant value after five years do not typically extend the lease term but may impact the lessee's decision to renew.
In the long run, all factors are variable, which includes the option to renew the lease or seek alternative premises. This flexibility means that after the five-year lease term, Gilbert Company can decide whether to continue in the same office space or relocate based on their business needs at that time.