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 $66,199 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $484,368. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $10,000, and an expected residual value of $7,900. 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.
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