Crestfield Office Space Leasehold Improvement Journal Entry

What journal entry would be needed to record the expense for the first year related to the improvements?

How are the expenses for leasehold improvements allocated over the remaining lease term for Crestfield?

Journal Entry for First Year's Expense:

The journal entry for the first year's expense for Crestfield's leasehold improvements would be a debit of $5,000 to Leasehold Improvement Amortization Expense, and a credit of $5,000 to Accumulated Amortization-Leasehold Improvement. The expense is evenly spread over the 5-year remaining lease term.

When Crestfield made improvements to the leased space, it incurred an expense which will provide benefits for the next 10 years. However, the lease period remaining is only 5 years. This scenario depicts a situation involving a leasehold improvement that the company will amortize over the shorter of its expected life or the remaining lease term. For Crestfield, which made $25,000 worth of improvements, the relevant period becomes the 5 years remaining in the lease, not the useful life of the improvements of 10 years.

Therefore, for the first year's expense, the leasehold improvement would be divided evenly over the remaining 5-year lease term. In the first year, the journal entry would be a debit of $5,000 ($25,000 / 5) to Leasehold Improvement Amortization Expense, and a corresponding credit of $5,000 to Accumulated Amortization-Leasehold Improvement.