Question

18. Panda Express leases office space. On January 3, Panda incurs $65,000 to improve the leased office space. These improvements are expected to yield benefits for 8 years. Panda has 4 years remaining on its lease. Compute the amount of expense that should be recorded the first year related to the improvements.

Select one:

a. $13,000

b. $65,000

c. $16,250

d. $8,125

e. $0 since the improvements are for the benefit of the owner of the property

36. A cash equivalent is:

Select one:

a. Generally within 3 years of its maturity date

b. Close to its maturity date but its market value may still be affected by interest rate changes

c. Another name for cash

d. An investment readily convertible to a known amount of cash

e. Is not considered highly liquid

Answer 1

Solution:-

18) In this question we have to find out the value of amount of expense that should be recorded the first year related to the improvements.

We know that for amortization of leasehold improvements cost of amortization = Amount of cost of improvement / lesser of lease term or useful life of imprvement

so, cost of amortization = $ 65,000 / lesser of 4 or 8

= $ 65,000 / 4

= $ 16,250

Hence, the option no (c ) with an amount of $ 16,250 is the correct one

36 ) Cash equivalents are the highly liquid assets which can be converted into cash easily , so option no ( d ) an investment readily convertible to a known amount of cash is also termed as cash equivalent as it is a short term investment which can be converted into cash easily with a short span of time .