Question

"Star Co. leases a building for its product showroom." The 10-year non-renewable lease will expire on December 31, 2007. In January 2002, Star redecorated its showroom and made leasehold improvements of $48,000. The estimated useful life of the improvements is 8 years. Star uses the straight-line method of amortization. What amount of leasehold improvements, net of amortization, should Star report in its June 30, 2002, Balance Sheet?

Answer 1

The amount of leasehold improvements which should Star state in the balance is $44,000

Step-by-step explanation:

The amount of leasehold improvements which should Star state in the balance is computed as:

Amount of leasehold improvements = Leasehold improvements - [( leasehold improvements / Years )× 1/2]

= $48,000 - [($48,000 / 6) × 1/2]

= $48,000 - $4,000

= $44,000

Number of years will be 6 because at the point when leasehold improvements made, 6 years remained. So, it is amortized for the 6 years not for 8 years.

As of June 30, 2002 , the leasehold improvements have been used only 1/2 year.