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 journal entry to record the cost of modernization. Record the cost of modernization of the store for $105,000 cash.

Debit Asset Improvement account $105,000

Credit Cash account $105,000

Being entries to record cost of modernization of store.

Explanation:

The cost of the modernization is a cost that will be capitalized with the cost of the store as an asset. When an asset is purchased for cash, the adjusting entries required are;

Debit Fixed asset account

Credit Cash account

The modernization will be recognized in the Asset improvements account hence the debit entry will be posted there while the corresponding credit will go to cash account.

answermarginal cost;

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