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. Equal rental payments, as required in the lease agreement, beginning on January 1, 2017 are $72,000.
2. Fair value of the building on January 1, 2017 was $440,000.
3. Estimated economic life of the building is 12 years. Unguaranteed residual value of the building is $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 annual incremental borrowing rate is 12% Lessor's implicit rate is not known by Kimberly-Clark.
6. Amount of executory costs included in the yearly rental payment is $2,471 Executory costs relate to taxes on the property.
Instructions:
Calculate the Present value of the lease payments and prepare a lease amortization table and 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
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Assume that on January 1, 2017, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement t...
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