Question

On January 4 of this year, Diaz Boutique incurs a $105,000 cost to modernize its store. Improvements include new floors, ceilings, wiring, and wall coverings. These improvements are estimated to yield benefits for 10 years. Diaz leases its store and has eight years remaining on the lease.

Required : Prepare the entry to record (1) the cost, of moderanization and (2) amortization at the end of this current year.

Answer 1

Step-by-step explanation:

The journal entries are shown below:

1. Modernization cost A/c Dr $105,000

To Cash A/c $105,000

(Being the cost of modernization is recorded)

2. Amortization of modernization A/c $13,125

To Modernization A/c $13,125

(Being the amortization is recorded)

The computation of the amortization is shown below:

= Modernization cost ÷ remaining life

= $105,000 ÷ 8 years

= $13,125