ch21_sol - Name: Solution Date: Instructor: Course: th...

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124b8484d9a19178c2e6773d420a93696af19ecd.xlsx, Exercise 21-3 Solution, Page 1 of 8, 03/29/2012, 01:32:43 Name: Solution Date: Instructor: Course: 1. The agreement requires equal rental payments of $90,000 beginning on January 1, 2012. 2. The fair value of the building on January 1, 2012, is $550,000 $10,000 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 12% per year. The lessor's implicit rate is not known by Kimberly-Clark. 6. The yearly rental payment includes $3,088.14 of executory costs related to taxes on the property. Instructions: Capitalized amount of the lease: Yearly payment 90,000.00 Executory costs 3,088.14 Minimum annual lease payment 86,911.86 Present value of minimum lease payments = $549,999.96 Jan 1, 12 Leased Building 550,000.00 Lease Liability 550,000.00 Jan 1, 12 Executory Costs 3,088.14 Lease Liability 86,911.86 Cash 90,000.00 Dec 31, 12 Depreciation Expense ($550,000 / 10 years) 55,000.00 Accumulated Depreciation - Capital Leases 55,000.00 Dec 31, 12 Interest Expense 55,570.58 Interest Payable 55,570.58 (See Schedule 1) Jan 1, 13 Executory Costs - Property Taxes 3,088.14 Interest Payable 55,570.58 Lease Liability 31,341.28 Cash 90,000.00 Dec 31, 13 Depreciation Expense 55,000.00 Accumulated Depreciation - Capital Leases 55,000.00 Dec 31, 13 Interest Expense 51,809.62 Interest Payable 51,809.62 Schedule 1: KIMBERLY-CLARK CORPORATION (Lessee) Lease Amortization Schedule Annual Payment Less Executory Costs Date Jan 1, 12 550,000.00 Jan 1, 12 86,911.86 0.00 86,911.86 463,088.14 Jan 1, 13 86,911.86 55,570.58 31,341.28 431,746.86 Jan 1, 14 86,911.86 51,809.62 35,102.24 396,644.62 Intermediate Accounting , 14 th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse E21-3 (Lessee Entries, Capital Lease with Executory Costs and Unguaranteed Residual Value) Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Trevino Storage Company. The following information pertains to this lease agreement. 3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of 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 2012 and 2013. Kimberly-Clark’s corporate year end is December 31. Annual Payment Less Executory Costs Interest (12%) on Liability Reduction of Lease Liability Lease Liability
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124b8484d9a19178c2e6773d420a93696af19ecd.xlsx, Exercise 21-3, Page 2 of 8, 03/29/2012, 01:32:43 Name: Date: Instructor: Course: 1. The agreement requires equal rental payments of $90,000 beginning on January 1, 2012. 2. The fair value of the building on January 1, 2012, is $550,000 $10,000 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 12% per year. The lessor's implicit rate is not known by Kimberly-Clark.
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