Exercise 21A4 ad Assume that on December 31 2016 KimberlyCla

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 $68,099 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $498,137 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $10,000, and an expected residual value of $6,000 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, Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 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 2016, 2017, and 2018. 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 O decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit To record the lease) To record first lease payment) 12/31/17 (To record amortization of the right-of-use asset) (To record interest expense)

Solution

1) Date Account titles and Explanation Debit Credit 12/31/16 Leases $493,505.96 Lease Liability $493,505.96 (To record the lease) Present value of minimum lease payments = 68099 x PVIFA(8%,10) Present value of minimum lease payments = 68099 x 7.24689 1/1/17 Lease Liability $68,099.00 Cash $68,099.00 (To record the first lease payments) 12/31/17 Depreciation Expense ($493,505.82/10) $49,350.60 Accumulated Depreciation— Capital Leases $49,350.60 To record amortisation 12/31/17 Interest Expense $34,032.56 Interest Payable $34,032.56 12/31/17 Interest Payable $34,032.56 Lease Liability $34,067.44 Cash $68,100.00 12/31/18 Depreciation Expense ($493,505.82/10) $49,350.60 Accumulated Depreciation— Capital Leases $49,350.60 To record amortisation 12/31/17 Interest Expense $31,307.16 Interest Payable $31,307.16 12/31/17 Interest Payable $31,307.16 Lease Liability $36,793.84 Cash $68,101.00 Schedule 1 KIMBERLY-CLARK CORP. Lease Amortization Schedule (Lessee) Date Annual Payment Interest (8%) on Liability Reduction of Lease Liability Lease Liability 31/12/16 $493,505.96 1/1/17 $68,099.00 $68,099.00 $425,406.96 1/1/18 $68,100.00 $34,032.56 $34,067.44 $391,339.52 1/1/19 $68,101.00 $31,307.16 $36,793.84 $354,545.68 1/1/20 $68,102.00 $28,363.65 $39,738.35 $314,807.34 1/1/21 $68,103.00 $25,184.59 $42,918.41 $271,888.92 1/1/22 $68,104.00 $21,751.11 $46,352.89 $225,536.04 1/1/23 $68,105.00 $18,042.88 $50,062.12 $175,473.92 1/1/24 $68,106.00 $14,037.91 $54,068.09 $121,405.83 1/1/25 $68,107.00 $9,712.47 $58,394.53 $63,011.30 1/1/26 $68,108.00 $5,040.90 $63,067.10 -$55.80