Respuesta :
The expense in the first year relating to the improvements is $12,500
What is leasehold improvement?
Leasehold improvement is a capital expenditure incurred to improve the condition of an asset that has been leased from a third party.
In this case, a leasehold improvement costing $75,000 was incurred and lease period is only 6 years remaining whereas the improvement would provide benefits for 8 years, in essence, the improvement cost should be depreciated using the lower of remaining lease period and years of benefits.
As a result, annual depreciation would be computed using the straight line depreciation method where useful life is 6 years
first year depreciation=improvement cost/useful life
first year depreciation=$75,000/6
first year depreciation=$12,500
Note that the requirement is to determine the first year expense that only relates to improvements , in other words, the lease expense should be ignored
Find out more on leasehold on:https://brainly.com/question/28150463
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Complete question with options:
Monte Ray leases office space for $7,000 per month. On January 3, Monte Ray incurs $75,000 to improve his leased office space. These improvements are expected to yield benefits for 8 years. Ray has 6 years remaining on his lease. Compute the amount of expense that should be recorded the first year related to the improvements.
A. $19,500.
B. $7,000.
C. $12,500.
D. $9,375.
E. $16,375.
