Assume that on December 31, 2016, Kimberly-Clark Corp. signs a 10-year, non-canc
ID: 2556361 • Letter: A
Question
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.
(a)
Date
Account Titles and Explanation
Debit
Credit
12/31/16
(To record the lease) (Please include all PV calculations. I'm not sure how those are found)
(To record first lease payment)
12/31/17
(To record amortization of the right-of-use asset)
(To record interest expense)
12/31/18
(To record amortization of the right-of-use asset)
(To record interest expense)
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 $67,299 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $492,571. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $10,500, and an expected residual value of $7,300. 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 8% per year. The lessor’s implicit rate is not known by Kimberly-Clark.Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Explanation / Answer
Period Interest Payment PVIF@8% Present worth Interest on Leased Liability beginning Balance Lease Liability Ending Balance lease Liability Right of use an asset 492571.84 Amortization expense Balance in right to use an asset 0 67299 1 67299 425272.8411 425272.84 492571.8 1 67299 0.9259259 62313.8889 34021.82729 459294.6684 391995.67 33277.17271 459294.7 2 67299 0.8573388 57698.0453 31359.65347 423355.3219 356056.32 35939.34653 423355.3 3 67299 0.7938322 53424.116 28484.50575 384540.8277 317241.83 38814.49425 384540.8 4 67299 0.7350299 49466.7741 25379.34621 342621.1739 275322.17 41919.65379 342621.2 5 67299 0.6805832 45802.5686 22025.77391 297347.9478 230048.95 45273.22609 297347.9 6 67299 0.6301696 42409.7857 18403.91582 248452.8636 181153.86 48895.08418 248452.9 7 67299 0.5834904 39268.3201 14492.30909 195646.1727 128347.17 52806.69091 195646.2 8 67299 0.5402689 36359.5557 10267.77381 138614.9465 71315.947 57031.22619 138614.9 9 67299 0.500249 33666.2552 5705.27572 77021.22222 9722.2222 61593.72428 77021.22 10 10500 0.4631935 4863.53162 777.7777778 10500 0 9722.222222 67299 492571.841 Amount in $ Date General Journal Debit Credit December 31, 2016 Right to use Asset(building) 492571.8411 Leased Liability 492571.8411 To record the inception of lease December 31, 2016 Leased Liability 67299 Cash 67299 To record the first lease payment December 31, 2017 Amortization expense 33277.17 Right of use asset 33277.17 To record the amortization of the right to use an asset Interest expense 34021.83 Lease Liability(accrete interest) 34021.83 To record the interest expense December 31, 2018 Amortization expense 35939.35 Right of use asset 35939.35 To record the amortization of the right to use an asset Interest expense 31359.65 Lease Liability(accrete interest) 31359.65 To record the interest expense