Question

On January 2, year 5, Ames Corp. signed an eight‐year lease for office space. Ames has the option to renew the lease for an additional four‐year period on or before January 2, year 12. During January year 5, Ames incurred the following costs: $120,000 for general improvements to the leased premises with an estimated useful life of 10 years.$50,000 for office furniture and equipment with an estimated useful life of 10 years. At December 31, year 5, Ames' intentions as to the exercise of the renewal option are uncertain. A full year's amortization of leasehold improvements is taken for calendar year 2. In Ames' December 31, year 5, Balance Sheet, accumulated amortization should be:

Answer 1

Answer:

$15,000

Explanation:

The computation of the accumulated amortization is shown below:

= Cost of general improvements to the leased premises ÷ number of years for lease

= $120,000 ÷ 8 years

= $15,000

We simply divided the general improvement cost by the lease period so that the accumulated amortization could come

And, the office furniture and the equipment is not considered. Hence, ignored it