Company A started to lease new retail space in 2018 and added shelving and fixtu

Question

Company A started to lease new retail space in 2018 and added shelving and fixtures to this leased space. The leasehold improvement costs $225,000.

Based on a review of invoices the previous accountant did not capitalize the shipping and installation cost of $3527. These costs were expensed and recorded as miscellaneous selling expense.

Company A is using the double declining depreciation method for the leasehold improvements. The leasehold improvement has a useful life of 15 years and a salvage value of $15,000

What is the adjusting entry?

I understand the double declining depreciation method but how does the $3527 play into this. Is that cost added to leasehold improvements? Is it possible to fit this into one adjusting journal entry?

Explanation / Answer

Yes, $ 3527 would be capitalized and the adjusting entry for the same would be:

Debit Retained Earnings A/c $ 470

Credit Accumulted Dep A/c $ 470

Calculation

Dep on $ 225000, at Full Month convention assuming that asset put to use in Jan = $ 30000

Dep on $ 228527, at Full Month convention assuming that asset put to use in Jan = $ 30470

Difference = $ 470

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