CamCo LtdLeased Floor Space in a New Office Building

question 152

Multiple Choice

CamCo Ltd.leased floor space in a new office building.Rent will cost $10,000 per month for a ten-year lease,but some renovations are needed and will be paid by CamCo to customize the space.The renovations include installing walls to create a new office and boardroom (cost $8,000) ,new flooring (cost $5,800) ,painting (cost $1,500) and updated wiring to accommodate computer servers (cost $8,700) .How should these costs be handled for accounting purposes by CamCo?

• A)Painting costs should be charged to rent expense and the other costs should be capitalized to leasehold improvements
• B)They should all be capitalized as leasehold improvements
• C)They should all be charged to rent expense
• D)They should be capitalized as development costs
• E)Painting costs should be capitalized to leasehold improvements and other costs should be charged to rent expense

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Definitions:

Discounted Present Value

The current worth of a future sum of money or stream of cash flow given a specified rate of return.

Additional Paid-In Capital

Capital received from investors for shares, exceeding the par value of the shares, often reflecting the premium paid over nominal value.

Market Value

The ongoing pricing level at which a service or asset is offered for buying or selling in the market environment.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer.