On january 1 of this year, diaz boutique pays $105,000 to modernize its store. improvements include new floors, ceilings, wiring, and wall coverings. these improvements are estimated to yield benefits for 10 years. diaz leases (does not own) its store and has eight years remaining on the lease. prepare the entry to record the cost of modernization and amortization at the end off this current year.

Explanation:

The journal entries are shown below:

1. Leasehold expense A/c Dr $105,000

        To Cash A/c $105,000

(Being the cost of modernization is recorded)

2. Amortization expense - Leasehold A/c Dr $10,500

           To Leasehold A/c $10,500

(Being amortization expense is recorded)

The computation is shown below:

= Purchase cost  ÷ estimated yield benefits

= $105,000 ÷ 10 years

= $10,500

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