Question
Assume that on December 31, 2016, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage Company. The following
Assume that on December 31, 2016, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement.
1. | The agreement requires equal rental payments of $67,499 beginning on December 31, 2016. | |
2. | The fair value of the building on December 31, 2016 is $494,021. | |
3. | The building has an estimated economic life of 12 years, a guaranteed residual value of $10,500, and an expected residual value of $7,100. Kimberly-Clark depreciates similar buildings on the straight-line method. | |
4. | The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. | |
5. | Kimberly-Clarks incremental borrowing rate is 8% per year. The lessors implicit rate is not known by Kimberly-Clark. |
Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Answer the following:
Suppose the same facts as above, except that Kimberly-Clark incurred legal fees resulting from the execution of the lease of $5,000, and received a lease incentive from Sheffield to enter the lease of $1,000. How would the initial measurement of the lease liability and right-of-use asset be affected under this situation?
Suppose that in addition to the $67,499 annual rental payments, Kimberly-Clark is also required to pay $5,000 for insurance costs each year on the building directly to the lessor, Sheffield Storage. How would this executory cost affect the initial measurement of the lease liability and right-of-use asset? (Round answer to 0 decimal places, e.g. 5,275.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started