Question

On January 2, 2018, Upton, Inc., signed a ten-year lease for office space. Upton classified the lease as a finance lease. Upton has the option to renew the lease for an additional four-year period on or before January 2, 2022. During early January 2020, two years after occupying the leased premises, Upton made general improvements to the premises costing $400,000 and having an estimated useful life of 15 years. At December 31, 2020, Upton's intentions as to the exercise of the renewal option are uncertain because they depend upon future office space requirements.

  Upton should record amortization of leasehold improvements for 2020 at:

	A.	$30,000
	B.	$36,000
	C.	$40,000
	D.	$50,000

Answer 1

Upton should record amortization of leasehold improvements for 2020 is calculated as follows:

Total Lease period is 10 years, Upton has the option to renew the lease for an additional four-year period, but it is uncertain, so total lease period is 10 years.

January 2020, two years after occupying the leased premises, the general improvements to the premises costing $400,000 is made.

Upton should record amortization of leasehold improvements for 2020 = $400,000 / ( 10 Years - 2 Years)

                                                                                                     = $400,000 / 8 Years

                                                                                                     = $50,000

Upton should record amortization of leasehold improvements for 2020 is $50,000

So correct answer is option (D) or $50,000