Star co. leases a building for its product showroom. the ten-year nonrenewable lease will expire on december 31, year 10. in january year 5, star redecorated its showroom and made leasehold improvements of $48,000. the estimated useful life of the improvements is 8 years. star uses the straight-line method of amortization. what amount of leasehold improvements, net of amortization, should star report in its june 30, year 5, balance sheet?

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Business

Quinten Rhodes

25 July, 20:40

Star co. leases a building for its product showroom. the ten-year nonrenewable lease will expire on december 31, year 10. in january year 5, star redecorated its showroom and made leasehold improvements of $48,000. the estimated useful life of the improvements is 8 years. star uses the straight-line method of amortization. what amount of leasehold improvements, net of amortization, should star report in its june 30, year 5, balance sheet?

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Backbone · Answer 1

The leasehold building improvement should be amortized over the lesser of the remaining life of the lease, which is 6 years, the life of the said improvement is 8 years. To get the amortization for a year, the calculation should be:

$48,000 / 6 = $8,000 (amortization for a year),

$8,000 / 12 * 6months (jan - june) = $4,000

So with that, the amount of leasehold improvement would be like this:

$48,000 - $4,000 = $44, 000