Question

Exercise 21A-4 a-d

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 $67,899 beginning on December 31, 2016.
2.		The fair value of the building on December 31, 2016 is $497,614.
3.		The building has an estimated economic life of 12 years, a guaranteed residual value of $12,000, and an expected residual value of $8,200. 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.

Now suppose that, at the end of the lease term, Kimberly-Clark took good care of the asset and Sheffield agrees that the fair value of the asset is actually $12,000. Record the entry for Kimberly-Clark at the end of the lease to return control of the storage building to Sheffield (assuming the accrual of interest on the lease liability has already been made). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) (SHOW WORK!!)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

Answer is given below

Journal Credit Date 31-12-2026 Lease Liability To Gain on lease Debit $3,800 $3,800 Gain on Lease is Guaranteed Residual value - Expected Residual value