Question

On January 2, 2005, 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, 2012. During January 2005, 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, 2005, 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 two. In Ames' December 31, 2005 Balance Sheet, accumulated amortization should be:a) $10,000b) $15,000c) $17,000d) $21,250

Answer 1

Answer:

B) $15,000

Explanation:

Even though the leasehold improvements have an estimated useful life of 10 years, Ames should amortize them in 8 years since they are not certain about renewing the lease contract.

amortization per year = $120,000 / 8 = $15,000

Since Ames has only leased the office for one year, then the accumulated amortization should be $15,000