CPA PEP Prep Forum: case #18 - Journal entries of Leasehold improvement

CPA PEP Prep Q&A

case #18 - Journal entries of Leasehold improvement

I understand that recognizing acquisition of leasehold improvement $84,205 as income, is incorrect accounting treatment, but I have no idea what account should be credited.

Dr. Leasehold improvement (adding to capital assets) $84,205
Cr. ???

Please help me understand this.

Thanks.
Yuki

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Without more detail, I don’t understand what journal entry you are trying to do.

In general, when you incur costs for leasehold improvement, you should

Dr Leasehold improvement (fixed asset)

Cr Cash

Hope it helps.

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Hi Esther,

The entity (PAL) simply booked the NBV of leasehold improvements which HSI left behind. (HIS ceased the operation). Please refer to page 1 and 7 for the information.

So if PAL paid the $84,205 for leasehold improvement, the costs should be capitalized as you mentioned below.

Dr. leasehold improvement (fixed asset)

Cr Cash

But, because HSI left these assets behind and PAL simply included these on PAL's F/S at NBV, I was not sure what account would be credited.

Thanks

Yuki

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