Question
Kingbird, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $20,000from United
Kingbird, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $20,000from United Corporation. The agreement stipulates the following.
Rental payments of $4,479are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease.Kingbirdmust reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $600, though these costs vary from year to year.Kingbirdmust make a payment of $500with the rental payment each period to cover the insurance United has on the warehouse.Kingbirdpaid legal fees of $1,000in executing the lease.
AssumingKingbird's incremental borrowing rate is6% and the rate implicit in the lease is unknown, how to prepare the journal entry to record the initial lease liability and right-of-use asset forKingbird.(Credit account titles are automatically indented when the amount is entered.Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)
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