Crestfield leases office space for $7,000 per month.On January 3,the company incurs $12,000 to improve the leased office space.These improvements are expected to yield benefits for 10 years.Crestfield has 4 years remaining on its lease.What journal entry would be needed to record the expense for the first year related to the improvements?
A)Debit Amortization Expense $1,200;credit Accumulated Amortization $1,200.
B)Debit Depletion Expense $3,000;credit Accumulated Depletion $3,000.
C)Debit Depreciation Expense $1,200;credit Accumulated Depreciation $1,200.
D)Debit Depletion Expense $12,000;credit Accumulated Depletion $12,000.
E)Debit Amortization Expense $3,000;credit Accumulated Amortization $3,000.

Question

Quizplus · Accepted Answer

The cost of the leasehold improvements ($12,000) should be amortized over the shorter of the useful life of the improvements or the remaining lease term. Since the lease term is 4 years, the annual amortization expense is $3,000 ($12,000 / 4 years).

Crestfield Leases Office Space for $7,000 Per Month