Crestfield Leases Office Space: Recording Expenses for Improvements

How should Crestfield record expenses for improvements to the leased office space?

Crestfield has 5 years remaining on its lease and incurred $15,000 to improve the leased office space, which is expected to yield benefits for 10 years. What journal entry should be made to record the expense for the first year related to the improvements?

Recording Expenses for Leasehold Improvements

When Crestfield makes improvements to the leased office space, it needs to record the expenses in a systematic manner. The company incurred $15,000 for improvements that will benefit the office space for 10 years, but since Crestfield only has 5 years remaining on its lease, the expenses need to be allocated accordingly.

In order to calculate the annual expense, the total improvement cost of $15,000 should be divided by the remaining lease term of 5 years. This yields an annual expense of $3,000.

The journal entry required to record the expense for the first year related to the improvements would be as follows:

Date: January 3
Debit: Leasehold Improvements Expense - $3,000
Credit: Accumulated Leasehold Improvements - $3,000

This journal entry accurately reflects the expense of the improvements made by Crestfield in the first year of the remaining lease term. By following this entry, Crestfield can ensure that its financial records are accurately reflecting the expenses incurred for the improvements.