Crestfield leases office space for $6,000 per month. On January 3, the company i

Question

Crestfield leases office space for $6,000 per month. On January 3, the company incurs $33,000 to improve the leased office space. These improvements are expected to yield benefits for 4 years. Crestfield has 2 years remaining on its lease. What journal entry would be needed to record the expense for the first year related to the improvements? Multiple Choice O Debit Amortization Expense $8,250, credit Accumulated Amortization $8,250. Debit Depletion Expense $16,500; credit Accumulated Depletion $16,500. Debit Depreciation Expense $8,250; credit Accumulated Depreciation $8.250. OOOO Debit Depletion Expense $33,000 credit Accumulated Depletion $33,000. O Debit Amortization Expense $16,500, credit Accumulated Amortization $16,500.

Explanation / Answer

Option E is correct.

Since the Improvements are expected to yield benefit for 4 years and remaning lease period is only 2 years, the amount spent on leasehold improvements will be amortized over the period lower of lease period and improvement years of benefits. So, $33,000 expense on improvement will be amortized in rest 2 years i.e. $16,500 each year.

It should be remember that depletion account is not used for amortizing leasehold improvements.

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