Assume that on December 31, 2019,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 $68,199beginning on December 31, 2019.2.The fair value of the building on December 31, 2019 is $498,399.3.The building has an estimated economic life of 12 years, a guaranteed residual value of $9,000, and an expected residual value of $4,900. 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-Clark's incremental borrowing rate is 8% per year. The lessor's implicit rate is not known by Kimberly-Clark.
Assume that on December 31,2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Shefeld Storage Company. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of $68,199 beginning on December 31,2019. The fair value of the building on December 31, 2019 is $498,399. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $9,000, and an expected residual value of $4,900. 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-Clark's incremental borrowing rate is 8% per year. The lessor's implicit rate is not known by Kimberly-Clark. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare the journal entries on the lessee's books to reect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019, 2020, and 2021. Kimberly-Clark's scal yea r-end is December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places as. 5,2 75.) Date Account Titles and Explanation Debit Credit 12/31/19 V' ' Right-of-UseAsset I ' ' ' Lease Liability I ' ' (To record the lease) 12/31/19 V' 'LeaseLiability l ' 68199 ' ' cas" k l ' 68199 (To record rst lease payment) 12/31/20 V Amortization Expense Right-ofUse Asset (To record amortization of the right-of-use asset) 12/31/20 V Interest Expense Lease Liability Cash 68199 (To record interest expense) 12/31/21 V Amortization Expense Right-of-Use Asset (To record amortization of the right-of-use asset) 12/31/21 V Lease Liability Interest Expense Cash (To record interest expense) 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 Shefeld to enter the lease of $1,000. How would the initial measurement of the lease liability and right-ofuse asset be affected under this situation? Right-of-use asset $ eTextbook and Media List of Accounts Suppose that in addition to the $68,199 annual rental payments, Kimberly-Clark is also required to pay $5,000 for insurance costs each year on the building directly to the lessor, Shefeld 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, eg. 5,275.) Lease liability $ eTextbook and Media List of Accounts Now suppose that, at the end of the lease term, Kimberly-Clark took good care of the asset and Sheffield agrees that the fair value of the asset is actually $9,000. Record the entry for Kimberly-Clark at the end of the lease to return control of the storage building to Sheffield (assuming the accrual of interest on the lease liability has already been made). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Lease Liability Gain on Lease eTextbook and Media List of Accounts
