Question

Phoenix Agency leases office space for $7,000 per month. On January 3, Phoenix incurs $65,000 to improve the leased office space. These improvements are expected to yield benefits for 8 years. Phoenix has 5 years remaining on its lease. Compute the amount of expense that should be recorded the first year related to the improvements.

Answer 1

$13,000

Step-by-step explanation:

The computation of the expense recorded in the first year is shown below:

Here the leasehold improvement should be depreciation by considering the lease term left or the estimated useful life whichever is lesser

Now the depreciation expense is

= Improvement cost ÷ lease term left

= $65,000 ÷ 5 years

= $13,000

hence, the amount of expense for the first year is $13,000