Phoenix Agency leases office space.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 amount of expense that should be recorded in the first year is calculated as follows:
Total cost of improvements: $65,000
Useful life of improvements: 8 years
Remaining useful life of improvements: 5 years
Annual depreciation expense = total cost / useful life
= $65,000 / 8
= $8,125
Expense for first year = annual depreciation expense x remaining useful life
= $8,125 x 5
= $40,625
However, since we are only looking for the amount of expense to be recorded in the first year, we divide this amount by 3 to get:
$40,625 / 3 = $13,541.67
Rounded to the nearest thousand, the answer is $13,000. Therefore, the best choice is C.

Phoenix Agency Leases Office Space