Question

Assume that on December 31, 2019, 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 $67,199 beginning on December 31, 2019. 2 The fair value of the building on December 31, 2019 is $491.847 3 The building has an estimated economic life of 12 years, a guaranteed residual value of $10,500, and an expected residual value of $7400. Kimberly Clark depreciates simlar 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 Cick here to view factor tables (For calculation purposes, use 5 decimal places as displayed in the factor table provided)

Answer 1

DR@8% Calculation of Asset on Lease Period Lease Rent Dec 31, 2019 67,199 Dec 31, 2020 67,199 Dec 31, 2021 67,199 Dec 31, 2022 67,199 Dec 31, 2023 67,199 Dec 31, 2024 67,199 Dec 31, 2025 67,199 Dec 31, 2026 67,199 Dec 31, 2027 67,199 Dec 31, 2028 67,199 Dec 31, 2029 3,100 Total 0.92593 0.85734 0.79383 0.73503 0.68058 0.63017 0.58349 0.54027 0.50025 0.46319 Present Value 67,199.00 62,221.30 57,612.31 53,344.73 49,393.27 45,734.51 42,346.77 39,209.97 36,305.53 33,616.23 1,435.90 4,88,420 * $3100 ($10500 - $7400) considered in the lease liability of Lessee as the Expected Residual value is lower than the Guaranteed Residual Effective Interest Table Year Opening Balance Interest@8% Dec 31, 2019 4,88,420 Dec 31, 2020 4,21,221 33,698 Dec 31, 2021 3,87,720 31,018 Dec 31, 2022 3,51,539 28,123 Dec 31, 2023 3,12,463 24,997 Dec 31, 2024 2,70,261 21,621 Dec 31, 2025 2,24,683 17,975 Dec 31, 2026 1,75,459 14,037 Dec 31, 2027 1,22,297 9,784 Dec 31, 2028 64,882 5,191 Dec 31, 2029 2,874 226 Instalment 67,199 67,199 67,199 67,199 67,199 67,199 67,199 67,199 67,199 67,199 3,100 Closing Balance | 4,21,221 3,87,720 3,51,539 3,12,463 2,70,261 2,24,683 1,75,459 1,22,297 64,882 2,874 Credit Journal Entries Date Particulars Right of Use Asset Dec 31,2019 To Lease Liability (To record the lease) Debit 4,88,420 4,88,420 67,199 Dec 31,2019 Lease Liability To Bank/Cash (To record first lease payment) 67,199 48,842 Dec 31,2020 Amortiation Expense To Right to Use Asset (To record amortization of the right-of-use asset) 48,842 33,698 Dec 31,2020 Finance Charges/Interest Expenes To Lease Liability (To record interest expense) 33,698 67,199 Dec 31,2020 Lease Liability To Bank/Cash (To record lease payment) 67,199 48,842 Dec 31,2021 Amortiation Expense To Right to Use Asset (To record amortization of the right-of-use asset) 48,842 31,018 Dec 31,2021 Finance Charges/Interest Expenes To Lease Liability (To record interest expense) 31,018 67,199 Dec 31,2021 Lease Liability To Bank/Cash (To record lease payment) 67,199