Each member of the group will prepare answers to the requirements in this assignment.
See BTN 10-8 (Beyond The Numbers) “Hitting The Road”, page 433. This assignment
says to "Team up with one or more….”. But the assignment is to be done individually.
Please be sure that you clearly identify the particular exercise by number.
Post your thread by Sunday, 11:59 p.m. (ET). Your thread should be between 200-400
words.
The King’s Academy is renting a building to conduct their daycare business. The “Property is
rented under a contract called a lease.” [Wil11]. The company has entered the lease as a lessee.
“The one who secures the right to possess and use the property is called the lessee.” [Wil11].
The company entered into the lease with no deposit. The King’s Academy is responsible for
monthly rent payments.
“A leasehold is an intangible asset for the lessee.” [Wil11]. The childcare center owner entered
the agreement paying only the first and last month’s rent. By having a form of an upfront
payment, the accountant should create a Leasehold Account. The Leasehold Account will show
the last month’s rent payment should be recorded as a debit. The “… leasehold account balance
remains intact until that final period when its balance is transferred to Rent Expense.” [Wil11].
The leasehold is an intangible asset.
The lease also grants the lessee the ability to pay for improvements and alterations. These are
subject to the lessor’s approval. “These alterations and improvements are called leasehold
improvements and the lessee debits these costs to a Leasehold Improvements Account.”
[Wil11]. The improvements costs should be amortized over the life of the lease because they
belong to the lessor once the lease is fulfilled. This is also an intangible asset.
The King’s Academy has entered into a lease that is beneficial for their company. The owner has
an option to renew the lease at the end of the contract. This lease agreement was helpful
because the low cost of the rent. The intangible assets of leasehold and leasehold
improvements benefited The King’s Academy.
References
Wild, J. J., Shaw, K. W., & Chiapetta, B. (2011). Fundamental Accounting Principles. New
York: McGraw-Hill/Irwin.
