E$20\mathrm{.}4($LO $2,4)$ Excel $($Lessee Entries; Finance Lease and Unguaranteed Residual Value$)$ Assume that on December $31,2024,$ 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.

The agreement requires equal rental payments of $$71,830$ beginning on December $31,2024.$

The fair value of the building on December $31,2024,$ is $$525,176.$

The building has an estimated economic life of $12$ years, a guaranteed residual value of $$10,000,$ and an expected residual value of $$7,000.$ Kimberly$-$Clark depreciates similar buildings on the straightline method.

The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.

Kimberly$-$Clark's incremental borrowing rate is $8\%$ per year. The lessor's implicit rate is not known by Kimberly$-$Clark.

Instructions

a$.$ Prepare the journal entries on the lessee's books to reflect the signing of the lease agreem nt and to record the payments and expenses related to this lease for the years $2024,2025,$ and $2026.$ Kimberly$-$Clark's fiscal year$-$end is December $31.$

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?

c$.$ Suppose that in addition to the $$71,830$ annual rental payments, Kimberly$-$Clark is also required to pay $$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?

d$.$ Return to the original facts in the problem. Now suppose that, at the end of the lease term, KimberlyClark took good care of the asset and Sheffield agrees that the fair value of the asset is actually $$10,000.$ 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$).$