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. 2. 3. The agreement requires equal rental payments of $67,199 beginning on December 31, 2019. The fair value of the building on December 31, 2019 is $491,847. The building has an estimated economic life of 12 years, a guaranteed residual value of $10,500, and an expected residual value of $7,400. Kimberly-Clark depreciates similar buildings on the straight-line method. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. Kimberly-Clark's incremental borrowing rate is 8% per year. The lessor's implicit rate is not known by Kimberly-Clark. 4. 5.

If possible please include what numbers you inputted for FV, PV, PMT, n and i when using the financial calculator.

Answer 1

Date	Account Title and Explanation	Debit	Credit
Dec 31, 2019	Right of use Asset	$         488,420
	Lease liability		$         488,420
Dec 31, 2019	Lease liability	$           67,199
	Cash		$           67,199
Dec 31, 2020	Amortization Expense	$           48,842
	Right of use Asset		$           48,842
Dec 31, 2020	Lease liability	$           33,501
	Interest expense	$           33,698
	Cash		$           67,199
Dec 31, 2021	Amortization Expense	$           48,842
	Right of use Asset		$           48,842
Dec 31, 2021	Lease liability	$           36,181
	Interest expense	$           31,018
	Cash		$           67,199

1		Amount	PV factor	Present value
	Lease	67,199	7.24689	$     486,984
	Difference in Residual value (10500-7400)	3100	0.4632	$         1,436
	Right of use Asset Amortisation expenses will be Right to Use Assets Value=488,420/10 years=48,842	$     488,420

Date	Lease payable	Lease payment	Interest expense @ 8%	Reduction in lease payable	Lease payable
Dec 31, 2016	$                488,420	$                  67,199		$                  67,199	$                421,221
Dec 31, 2017	$                421,221	$                  67,199	$                  33,698	$                  33,501	$                382,720
Dec 31, 2018	$                382,720	$                  67,199	$                  31,018	$                  36,181	$                346,539

2		Amount	PV factor	Present value
	Lease	67,199	7.24689	$     486,984
	Legal Fees	5000	1	$         5,000
	Incentive	-1000	1	$        -1,000
	Difference in Residual value (10500-7400)	3100	0.46319	$         1,436
	Lease liability	$     492,420

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