Question

Question: On January 4 of this year, Diaz Boutique incurs a $105,000 cost to modernize its store. Improvements include new floors, ceilings, wiring, and wall coverings. These improvements are estimated to yield benefits for 10 years. Diaz leases its store and has eight years remaining on the lease. Prepare the entry to record (1) the cost of modernization and (2) amortization at the end of this current year.

Short answer

1. A leasehold improvement is debited by $105,000, and Cash is credited by $105,000.
2. Amortization Expense-Leasehold Improvements are debited by $10,500, and Accumulated Amortization-Leasehold Improvements are credited by $10,500.

Step-by-step solution

Meaning of Leasehold Improvements

The lessee makes payments to improve the leased property, such as painting and storefronts. Then these payments are known as the leasehold improvement.

Entry for the cost of modernization

Leasehold improvement	$105,000
Cash		$105,000
Record leasehold improvement

Entry for the amortization

Amortization expense- leasehold improvement	$10,500
Accumulated Amortization—Leasehold improvements		$10,500
Record amortization of leasehold over remaining lease life.

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