Assume that on January 1, 2017, Kimberly-Clark Corp. signs a 10-year noncancelab
ID: 2545863 • Letter: A
Question
Assume that on January 1, 2017, Kimberly-Clark Corp. signs a 10-year noncancelable 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 $76,500 beginning on January 1, 2017 2. The fair value of the building on January 1, 2017 is $411,000 3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of $10,300. 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 10% per year. The lessor's implicit rate is not known by Kimberly-Clark 6. The yearly rental payment includes $15,692 of executory costs related to taxes on the property 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 2017 and 2018. Kimberly-Clark's corporate year-end is December 31. (Hint: Do the table for ten periods based on present value of minimum lease payments.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)Explanation / Answer
Journal Entry in the books of Kinbley -Clark's for year 2017 and 2018 W/No-1Computation of Present Value of Lease Payment W/Note:2:- Lease Amortization Schedule Date Account & Explanation Debit Credit Yearly Payment $76,500 Date Annaul Lease Rent LessExecutory Cost Interest Principle Lease Outstanding Bal Executory Cost -$15,692 01/01/2017 $411,000 01/01/2017 Leased Building $411,000 Minimum Annual Lease Payment $60,808 01/01/2017 $60,808 $60,808 $350,192 Lease Liability $214,716 Present Value of Lease Payment $411,000 01/01/2018 $60,808 $35,019 $25,789 $324,403 Being Lease asset Recorded as per W/Note-1 Pvf @ 10% for 10 Year ($60808*6.759) Round Off 01/01/2019 $60,808 $32,440 $28,368 $296,036 Executory Costs $15,692 Lease Libility $60,808 Cash $76,500 Being Lease rent paid for 1st Year 31/12/2017 Deprecation Expense $41,100 Accumulated Depreciation- Leased Bulding $41,100 Being Depreciation expense booked, ( $411000/10 year)) Interest Expense $35,019 Interest Payable $35,019 Being Interest expence booked, ( W/Note-2) 01/01/2018 Executory Costs $15,692 Lease Libility $25,789 Interest Payable $35,019 Cash $76,500 Being Lease Liability, Executory Cost & Interest paid 31/12/2018 Deprecation Expense $41,100 Accumulated Depreciation- Leased Bulding $41,100 Being Depreciation expense booked, ( $411000/10 year)) Interest Expense $32,440 Interest Payable $32,440 Being Interest expence booked, ( W/Note-2)