Phoenix Agency: Amortization Expense Calculation

How to calculate the amount of amortization expense for office improvements made by Phoenix Agency?

Phoenix Agency leases office space and incurs $101,600 to improve the leased office space on January 3. These improvements are expected to yield benefits for 10 years, but Phoenix has only 8 years remaining on its lease.

Calculation of Amortization Expense:

The amount of amortization expense that should be recorded the first year related to the improvements is $12,700.

Amortization expense is a crucial concept in accounting, especially when it comes to allocating the cost of intangible assets or improvements over their useful life. In the case of Phoenix Agency, the improvements made to the leased office space need to be amortized over the remaining lease term, which is 8 years.

The total cost of improvements is $101,600, and by dividing this amount by the remaining lease term, we get an annual amortization expense of $12,700. This means that Phoenix Agency will need to recognize $12,700 as an expense in the first year to appropriately allocate the cost of improvements over the remaining lease period.