Golden Gate Financial Advisors, Inc. is a CPA firm which provides advisory, tax and audit services to clients in San Francisco, CA. Golden Gate Financial Advisor (GGFA) is a privately held corporation with a December 31st fiscal year end. In January 2018, Due to many employees working from home GGFA elected to move to new office space in January 2021. GGFA signed a 4 year lease for a small office building on January 5, 2021. GGFA will have the option at the conclusion of the lease on December 31, 2024 to purchase the building. In January 2023, GGFA management decided that there was a high probability that the company would purchase the building at the end of the lease term so GGFA spent $240,000 to renovate/improve the existing space. The improvements included new carpet, painting and remodeling the conference rooms. GGFA estimates that these improvements will have a useful life of 6 years. GGFA correctly recognized these improvements to the leased space as an asset in January 2023. GGFA is determining what the correct amount will be for 2023 to amortize the $240,000 expenditures. The CFO believes that since the lease will end as of December 31, 2024, the expenditures should be amortized over 2 years. The annual amortization expense would be $120,000. The CFO has requested for you to research if the improvements should be amortized over the remaining lease term (i.e. 2 years).

Accounting Issue: What is the correct number of years that GGFA should use to amortize the improvement expenditures?

Codification Reference:

Interpretation/Application of Guidance: The correct number of years to amortize the improvement expenditures is: a. 2 b. 4 c. 6 d. 0

The correct amount of amortization expense that GGFA will recognize for the year ending December 31, 2023, is a. $120,000 b. $ 60,000 c. $ 40,000 d. $ 0 2