Exercise 21A-4 a-d 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 $66,399 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $485,586. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $9,500, and an expected residual value of $7,200. Kimberly-Clark depreciates similar buildings on the straight-line 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. 4. 5. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Your answer is partially correct. Try again. 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 2016, 2017, and 2018. Kimberly-Clark's fiscal year-end is December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to O decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit 12/31/16Right-of-Use Asset 485594 485594 Lease Liability (To record the lease) Lease Liability 66399 66399 (To record first lease payment) 12/31/17 Amortization Expense 48559 48559 Right-of-Use Asset (To record amortization of the right-of-use asset) 32863 Lease Liability Interest Expense Cash 66399 (To record interest expense) 12/31/18 Amortization Expense 48556 48556 Right-of-Use Asset (To record amortization of the right-of-use asset) Lease Liability 29759 36640 Interest Expense 66399 Cash (To record interest expense) | Your answer is incorrect. Try again. 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 489594 SHOW LIST OF ACCOUNTS Your answer is incorrect. Try again. Suppose that in addition to the $66,399 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 O decimal places, e.g. 5,275.) Lease liability 489594 SHOW LIST OF ACCOUNTS Suppose that in addition to the $66,399 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 nswer to O decimal places, e.g. 5,275.) -ease liability 489594 SHOW LIST OF ACCOUNTS Your answer is partially correct. Try again. ow 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 9,500. 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 ease 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 9500 Lease Liability 9500 Gain on Lease lick if you would like to Show Work for this question: Open Show Work