Phoenix Agency Office Space Improvement Amortization Expense

How to compute the amount of amortization expense related to improvements?

1. What is the total cost of the improvements made by Phoenix Agency for the leased office space?

2. What is the useful life of the improvements?

3. How many years are remaining on Phoenix Agency's lease?

Answer:

The amount of amortization expense that should be recorded the first year related to the improvements is $4,212.

To compute the amount of amortization expense that should be recorded the first year related to the improvements, we need to determine the total cost of the improvements and the useful life of the improvements. In this case, Phoenix Agency incurs $35,100 to improve the leased office space, and these improvements are expected to yield benefits for 5 years. Therefore, the total cost of the improvements is $35,100, and the useful life of the improvements is 5 years.

However, Phoenix Agency has 3 years remaining on its lease. This means that the improvements will only provide benefits for the remaining 3 years of the lease. To calculate the amount of amortization expense that should be recorded in the first year, we need to divide the total cost of the improvements by the useful life of the improvements.

This gives us an annual amortization expense of $7,020 ($35,100 / 5 years). Since Phoenix Agency has 3 years remaining on its lease, the amount of amortization expense that should be recorded in the first year related to the improvements is $7,020 x 3/5 = $4,212.