On July 1, 2008, Falk Company signed a contract to lease space in a building for 20 years. The lease contract calls for annual (prepaid) rental payments of $100,000 on each July 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. On June 25, 2013, Falk decides to sublease the space to Ryan & Associates for the remaining 15 years of the lease—Ryan pays $240,000 to Falk for the right to sublease and it agrees to assume the obligation to pay the $100,000 annual rent to the building owner beginning July 1, 2013. After taking possession of the leased space, Ryan pays for improving the office portion of the leased space at a $130,000 cost. The improvements are paid for by Ryan on July 5, 2013, and are estimated to have a useful life equal to the 21 years remaining in the life of the building.
a) To amortize the $240,000 cost of the sublease.
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