Question

Phoenix Agency leases office space for $7,400 per month. On January 3, Phoenix incurs $51,600 to improve the leased office space. These improvements are expected to yield benefits for 6 years. Phoenix has 4 years remaining on its lease. Compute the amount of expense that should be recorded the first year related to the improvements.

Answer 1

$8,600

Step-by-step explanation:

total expenses incurred in the office improvements = $51,600

useful life of the office improvements = 6 (useful life for Phoenix Agency)

Phoenix cannot depreciate the office improvements, it must amortize them:

amortization per year = improvement costs / lesser of estimated useful life or remaining length of lease = $51,600 / 6 years = $8,600