My professor says the answer is D. But I think it should be A.
On December 1, 2018, Goetz Corporation leased office space for 10 years at a monthly rental of $80,000. On that date Goetz paid the landlord the following amounts:
Rent deposit $ 80,000
First month’s rent 80,000
Last month’s rent 80,000
Installation of new walls and offices 640,000
$880,000
The entire amount of $880,000 was charged to rent expense in 2018. What amount should Goetz have charged to expense for the year ended December 31, 2018?
A) | $80,000 |
B) | $85,333 |
C) | $165,333 |
D) | $640,000 |
B.$85,333.
december month's rent | $80,000 |
installation charges ($640,000 / 10 years * 1 month / 12 months) | $5,333.33 |
Goetz should have charged (rounded off) | $85,333 |
installation charges $640,000 shall be written off over life of lease of 10 years.
so yearly write off will be $640,000 / 10 years
=>$64,000.
so, monthly write off will be $64,000 / 12 =>$5,333.33.
along with it the actual monthly rent of $80,000 should be expensed.
SO total expense to be charged will be = $80,000 + $5,333 =>$85,333.
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