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.

Question

Quizplus · Accepted Answer

The improvements should be amortized over the shorter of the useful life of the improvements or the remaining lease term. Since the lease term is 5 years, the annual expense is $65,000 / 5 = $13,000.

Phoenix Agency Leases Office Space for $7,000 Per Month