Question
In: Accounting
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...
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 $67,399 beginning on December 31, 2019. 2. The fair value of the building on December 31, 2019 is $492,833. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $9,500, and an expected residual value of $6,200. 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.
Prepare 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 2019, 2020, and 2021.
Kimberly-Clark’s fiscal year-end is December 31.
(Credit account titles are automatically indented when
amount is entered. Do not indent manually. Round answers to 0
decimal places e.g. 5,275.)
Suppose the same facts as above, except that Kimberly-Clark
incurred legal fees resulting from the execution of the lease of
$5,000, and received a lease incentive from Sheffield to enter the
lease of $1,000. How would the initial measurement of the lease
liability and right-of-use asset be affected under this
situation?
Suppose that in addition to the $67,399 annual rental payments, Kimberly-Clark is also required to pay $5,000 for insurance costs each year on the building directly to the lessor, Sheffield Storage. How would this executory cost affect the initial measurement of the lease liability and right-of-use asset? (Round answer to 0 decimal places, e.g. 5,275.)
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 $9,500. Record the entry for Kimberly-Clark at the end of the lease to return control of the storage building to Sheffield (assuming the accrual of interest on the lease liability has already been made). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
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Expert Solution
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| Year | Journal entries in the books of Jack | Debit | Credit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year 1 | Right of use asset | 456,653 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease liability | 456,653 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year 1 to 10 | Depreciation (SLM - 10 years after residual value -$ 6200 | 45,045 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right of use asset | 45,045 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | Finance costs | 36,532 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease liability | 36,532 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | Finance costs | 34,063 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease liability | 34,063 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | Finance costs | 31,396 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease liability | 31,396 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2)
| Accounting in the books of Lessee | Lease liability and Right of use asset to be recognised | Amortisation schedule | ||||||
| Year | CF |
Discount factor @ 8% |
Disc. CF | Accretion @8% | Year end balance | |||
| Lease Liability | 2020 | 66,399 | 0.9259 | 61,481 | 35,995 | 419,539 | ||
| Fixed payments less any lease incentives receivable for 10 years ($ 67399- $ 1000) | 663,990 | 2021 | 66,399 | 0.8573 | 56,926 | 33,563 | 386,704 | |
| Less : service component | - | 2022 | 66,399 | 0.7938 | 52,710 | 30,936 | 351,241 | |
| Variable payments | - | 2023 | 66,399 | 0.7350 | 48,805 | 28,099 | 312,941 | |
| Amount guaranteed by Lessee | 9,500 | 2024 | 66,399 | 0.6806 | 45,190 | 25,035 | 271,577 | |
| Purchase options | - | 2025 | 66,399 | 0.6302 | 41,843 | 21,726 | 226,905 | |
| Total | 673,490 | 2026 | 66,399 | 0.5835 | 38,743 | 18,152 | 178,658 | |
| 2027 | 66,399 | 0.5403 | 35,873 | 14,293 |
 ekkarill92 answered 2 years agoRelated SolutionsAssume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $67,899
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 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...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $66,899
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$488,978.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,000, and an expected residual value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $68,399
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$499,848.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,000, and an expected residual value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $67,599
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$494,051.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,000, and an expected residual value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $67,799
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$496,890.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $12,000, and an expected residual
value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $67,399
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$492,833.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,500, and an expected residual value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $67,999
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$497,876.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $11,000, and an expected residual
value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $67,099 beginning on December 31, 2019.
2.
The fair value of the building on
December 31, 2019 is $491,817.
3.
The building has an estimated
economic life of 12 years, a guaranteed residual value of $12,000,
and an expected residual value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...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 $66,899
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$488,978.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,000, and an expected residual value...
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