Question

On January 1 of this year, Diaz Boutique pays $190,000 to modernize its store. Improvements include new floors, ceilings, wiring, and wall coverings. These improvements are estimated to yield benefits for 8 years. Diaz leases (does not own) its store and has 5 years remaining on the lease. 1. & 2. Prepare the journal entry to record the cost of modernization and amortization at the end of this current year.

Answer 1

SOLUTION:-

As given in the question on January 1 of this year business incurred $ 190,000 to modernize.

so

we must capitalize on as leasehold modernize or improvement.

journal entry to record cost of modernization

January 1, leasehold improvement A/C Dr $ 190,000

TO cash/bank A/c 190,000

( being cost incurred on modernization )

for the calculation of amortization expenses,we have to take the assumption

because there is no information regarding salvage value is given and the formula of amortization is

amortization expenses = cost - salvage value/ estimated life of asset

assumption 1. there is straight-line depreciation on leasehold improvement

amortization = 190,000 - 0/ 8

=$23,750

number of days asset in use in the current year is 362

amortization expenses, in the end, = 23750*362/365

=$23,555 approx

December 31 amortization expenses A/C Dr 23,555

To provision for amortization A/C 23,555

( being amortization expenses incurred in the year)