CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

On December 1, Myles Corporation leased office space for 10 years at a monthly rental of $100,000. On that date Myles paid the landlord the following amounts:

Rent deposit: $100,000
First month's rent: $100,000
Last month's rent: $100,000
Installation of new walls and offices: $540,000
Total: $840,000

The entire amount of $840,000 was charged to rent expense for the year. What amount should Myles have charged to expense for the year that ended December 31?
A. $100,000
B. $104,500
C. $204,500
Explanation: Rent expense should include items relevant to the current year. $100,000 + [($540,000 / 10) / 12]

User Contributed Comments 12

User Comment
evica For that matter, it should have been also 100000/12 - is that right? Somebody please explain...
ticomico Yes Evica. This question is wrong. It should have been 100,000 per month * 12 months.
johnsk Guys: notice that there is only one month left for the year (the lease was signed on Dec 1), and $100,000 is the monthly rent, not annual. The answer is correct.
murli 4,500 is it not depreciation? why it is rent?
mtcfa My take is that he $4,500 is a leasehold improvement. I thought it would be a separate amortization expense... not included as part of rent expense.
kimberly I did not realise that it was one month, Leasehold improvements paid by the lessee are expensed over the shorter of the lease period and the life of the improvements
fahad LI's cab be depreciated. 540k/(12x10) = 4.5
mishis rent deposit doesn't go into the expense?
MUTE no it does not. It's a deposit which the company can get back later. It's not an expense.
Profache Cash paid in advance (Deposits, Prepaid rent) is considered an asset.
Hishy I think the key here is that it said what was charged to EXPENSE not rent.
Lambo83 Why does it state first month's rent and last month's rent? Confusing. I would have answered it correctly if the question just had first month's rent
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