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 $66,699 beginning on December 31, 2019.
2.		The fair value of the building on December 31, 2019 is $487,529.
3.		The building has an estimated economic life of 12 years, a guaranteed residual value of $9,000, and an expected residual value of $6,400. 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.

A:

B: 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?

Right-of-use asset

$enter the Right-of-use asset in dollars

C: Suppose that in addition to the $66,699 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.)

Lease liability

$enter the Lease liability in dollars

Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019, 2020, and 2021. December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit 12/31/19 Right-of-Use Asset 485960 Lease Liability 485960 (To record the lease) 12/31/19 Lease Liability 66,699 Cash 66,699 (To record first lease payment) 12/31/20 Amortization Expense 48596 Right-of-Use Asset 48596 (To record amortization of the right-of-use asset) 12/31/20 Lease Liability 33158 Interest Expense 33541 Cash 66,699 (To record interest expense) 12/31/21 Amortization Expense 48596 Right-of-Use Asset 48596 (To record amortization of the right-of-use asset) 12/31/21 Lease Liability 35811 Interest Expense 30888 Cash 66,699