Assume that on December 31, 2016, Kimberly-Clark Corp. sns a 10 year, non-cancel
ID: 2518116 • Letter: A
Question
Assume that on December 31, 2016, Kimberly-Clark Corp. sns 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 $67,599 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $494,051 3. The building has an estimated economic life of 12 years, a guaranteed residual value of 59,000, and an expected residual value of $5,500. Kimberly-Clark depreciates similar buildings on the stroight-line method 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor S. Kimberly-Clark's incremental borrowing rate is 8% per year. The lessor's impliot rate is not known by Kimberly-clark. Click here to view the factor table. (For calculation purposes, use S decimal places as displayed in the factor table provided.) Prepare the jounal 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. amount is entered. Do not indent manually. Round answers to o decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit 12/31/16 (To record the lease) (To record first lease payment) 2/31/17 (To record amortization of the right-of-use asset) (To record interest expansa) 12/31/18 (To record amortization of tha right-of-use asset) (To record interest expanse)Explanation / Answer
Computation of Annual Lease Rent Annual Rental Payment $67,559 Cumm PVAF @ 8% for 1-10 Year 6.71 Present Value of Lease rental (a) 453321 Gurrented Residual Value $9,000 PVF @8% at the end of 10 Year 0.4632 PV of Residual Value (b) $4,168.80 Minimum Lease rental (a+b) $457,489.80 Journal Entry Date Account Tittle & Explanation Debit Credit 31/12/2016 Leased Equipment $457,490.00 Obligations under Capital Leases $457,490.00 To Record Leased Asset & liability 31/12/2016 Obligations under Capital Leases $67,599.00 Cash $67,599.00 To Record Lease rental Payment made 31/12/2017 Obligations under Capital Leases $36,408.00 Interest Expense $31,191.00 Cash $67,599.00 To Record Lease Payment and Interest expense 31/12/2017 Amortization Expense on Leased Equipment $44,849.00 Accumulated Amortization of Leased Equipment $44,849.00 ( $457490-9000)/10 To Record Amortisation Expense 31/12/2017 Obligations under Capital Leases $39,320.00 Interest Expense $28,279.00 Cash $67,599.00 To Record Lease Payment and Interest expense 31/12/2017 Amortization Expense on Leased Equipment $44,849.00 Accumulated Amortization of Leased Equipment $44,849.00 ( $457490-9000)/10 To Record Amortisation Expense