How should Wayne, Inc. record amortization of leasehold improvements for 2020?

Question:

Wayne should record amortization of leasehold improvements for 2020 at

Select one:

a. $30,000.

b. $36,000.

c. $45,000.

d. $60,000.

Final answer:

Wayne should record an annual amortization expense of $36,000 for the leasehold improvements made in 2020, as the improvements have a useful life of 10 years. The correct answer is b. $36,000.

Explanation:

The question asks how Wayne should record amortization of leasehold improvements for the year 2020 given that the improvements have a 10-year useful life. To calculate yearly amortization expense, the cost of the improvements is divided by their useful life.

In this case, $360,000 divided by 10 years results in an annual amortization expense of $36,000. Since the improvements were made at the beginning of 2020, the full annual expense applies to that year. Therefore, Wayne should record an amortization expense of $36,000 for 2020.

According to the information provided, Wayne, Inc. made general improvements to the leased premises in early January 2020, costing $360,000 and with an estimated useful life of 10 years.

Since Wayne's intentions as to the exercise of the renewal option are uncertain at December 31, 2020, the leasehold improvements should be amortized over the initial lease term of 8 years.

Amortization of Leasehold Improvements for Wayne, Inc. in 2020

Wayne, Inc. incurred leasehold improvements in early January 2020, investing $360,000 in enhancements to the leased office space. These improvements were estimated to have a useful life of 10 years, indicating a yearly amortization expense.

Given that the improvements were made at the beginning of the year and considering their 10-year useful life, Wayne should amortize the cost over the course of 2020. By dividing the total improvement cost by the useful life, the annual amortization expense amounts to $36,000.

With the uncertainty surrounding Wayne's decision to exercise the renewal option by December 31, 2020, it is appropriate to amortize the leasehold improvements over the initial lease term of 8 years. This approach ensures consistency in accounting treatment and aligns with financial reporting standards.

Recording the annual amortization expense of $36,000 for the leasehold improvements in 2020 accurately reflects the consumption of the asset over time and complies with accounting principles. It provides a clear picture of the company's financial performance and asset management.