Phoenix Agency leases office space for 7300 per month On Jan

Phoenix Agency leases office space for $7,300 per month. On January 3, Phoenix incurs $38,400 to improve the leased office space. These improvements are expected to yield benefits for 5 years. Phoenix has 3 years remaining on its lease. Compute the amount of expense that should be recorded the first year related to the improvements. Multiple Choice $7,300 $14,980. $12,800. $20,100. $7680

Solution

Cost of improvement on leased office space should be depreciated over the lesser of Estimated useful life of improvement or remaining length of lease term Remaining Length of lease term 3 Estimated useful life of improvement 5 Therefore being remaining length of lease term is less 3 years, improvement of $38400 would be depreciated over 3 years Annual Depreciation 38400/3 12800 Amount of expense that should be recorded the first year related to the improvements is {c} $12800