Question

On january 2, 2018, wayne, inc., signed an eight-year lease for office space. wayne classified the lease as a finance lease. wayne has the option to renew the lease for an additional four-year period on or before january 2, 2022. during early january 2020, two years after occupying the leased premises, wayne made general improvements to the premises costing $360,000 and having an estimated useful life of 10 years. at december 31, 2020, wayne's intentions as to the exercise of the renewal option are uncertain because they depend upon future office space requirements. wayne should record amortization of leasehold improvements for 2020 at

select one:
a. $30,000.
b. $36,000.
c. $45,000.
d. $60,000.

Answer 1

Wayne should record an annual amortization expense of $36,000 for the leasehold improvements made in 2020, as the improvements have a useful life of 10 years. The correct answer is b. $36,000.

Step-by-step explanation:

The question asks how Wayne should record amortization of leasehold improvements for the year 2020 given that the improvements have a 10-year useful life. To calculate yearly amortization expense, the cost of the improvements is divided by their useful life.

In this case, $360,000 divided by 10 years results in an annual amortization expense of $36,000. Since the improvements were made at the beginning of 2020, the full annual expense applies to that year. Therefore, Wayne should record an amortization expense of $36,000 for 2020.

According to the information provided, Wayne, Inc. made general improvements to the leased premises in early January 2020, costing $360,000 and with an estimated useful life of 10 years.

Since Wayne's intentions as to the exercise of the renewal option are uncertain at December 31, 2020, the leasehold improvements should be amortized over the initial lease term of 8 years.