Phoenix Agency Office Space Improvement

How much is the amount of amortization expense related to the improvements that should be recorded in the first year?

The amount of amortization expense that should be recorded in the first year related to the improvements is $6,694.

Amortization expense is an important accounting concept that helps spread out the cost of an intangible asset over its useful life. In this case, Phoenix agency has incurred $71,400 to improve the leased office space, with benefits expected for 8 years. However, Phoenix only has 6 years remaining on its lease.

In order to calculate the amount of amortization expense that should be recorded in the first year related to the improvements, we need to use the straight-line method.

First, we calculate the total cost of the improvements that will be amortized over the 8-year useful life, which is $71,400. Then, we determine the annual amortization expense by dividing the total cost of improvements by the useful life, resulting in $8,925 per year.

Since Phoenix has 6 years remaining on its lease, we need to calculate the portion of the annual amortization expense that relates to the first year of the 8-year useful life. This calculation gives us an amortization expense of $6,694 for the first year.

Therefore, by using the straight-line method, Phoenix should record an amortization expense of $6,694 in the first year related to the improvements made to the leased office space.