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 $67,499 beginning on December 31, 2016.
2. The fair value of the building on December 31, 2016 is $494,021.
3. The building has an estimated economic life of 12 years, a guaranteed residual value of $10,500, and an expected residual value of $7,100. 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.
Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Answer the following:
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 $67,499 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?
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Assume that on December 31, 2016, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreeme...
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