Name:

Date:

Instructor:

Course:

Intermediate Accounting, 15th Edition by Kieso, Weygandt, and Warfield

E21-3 (Lessee Entries, Capital Lease with Executory Costs and Unguaranteed Residual Value) Assume that on January 1, 2014, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Trevino Storage Company. The following information pertains to this lease agreement.

1. The agreement requires equal rental payments of

$72,000

beginning on January 1, 2014.

2. The fair value of the building on January 1, 2014, is

$440,000

3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of

$10,000

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

12%

per year. The lessor's

implicit rate is not known by Kimberly-Clark.

6. The yearly rental payment includes

$2,471.00

of executory costs related to taxes on the

property.

Instructions:

Prepare the journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2012 and 2015. Kimberly-Clarks corporate year end is December 31.

Capitalized amount of the lease:

Yearly payment

Amount

Executory costs

Amount

Minimum annual lease payment

Formula

Use the Excel Present Value (=PV) formula to determine the present value.

Jan 1, 14

Account Title

Amount

Account Title

Amount

Jan 1, 14

Account Title

Amount

Account Title

Amount

Account Title

Amount

Dec 31, 14

Account Title

Amount

Account Title

Amount

Dec 31, 14

Account Title

Amount

Account Title

Amount

Jan 1, 15

Account Title

Amount

Account Title

Amount

Account Title

Amount

Account Title

Amount

Dec 31, 15

Account Title

Amount

Account Title

Amount

Dec 31, 15

Account Title

Amount

Account Title

Amount

Schedule 1:

KIMBERLY-CLARK CORPORATION (Lessee)

Lease Amortization Schedule

Annual Payment Less Executory Costs

Date

Annual Payment Less Executory Costs

Interest (12%) on Liability

Reduction of Lease Liability

Lease Liability

Jan 1, 14

Amount

Jan 1, 14

Amount

Amount

Formula

Formula

Jan 1, 15

Amount

Formula

Formula

Formula

Jan 1, 14

Amount

Formula

Formula

Formula