Assume that on December 31, 2019, Kimberly-ClarkCorp. signs a 10-year, non-cancelable lease agreement tolease a storage building from Sheffield Storage Company. Thefollowing information pertains to this lease agreement.
| 1. | | The agreement requires equalrental payments of $66,199 beginning on December 31, 2019. |
| 2. | | The fair value of thebuilding on December 31, 2019 is $484,368. |
| 3. | | The building has an estimatedeconomic life of 12 years, a guaranteed residual value of $10,000,and an expected residual value of $7,900. Kimberly-Clarkdepreciates similar buildings on the straight-line method. |
| 4. | | The lease is nonrenewable. Atthe termination of the lease, the building reverts to thelessor. |
| 5. | | Kimberly-Clark’s incrementalborrowing rate is 8% per year. The lessor’s implicit rate is notknown by Kimberly-Clark. |
Prepare the journal entries on the lessee’s books to reflect thesigning of the lease agreement and to record the payments andexpenses related to this lease for the years 2019, 2020, and 2021.Kimberly-Clark’s fiscal year-end is December 31.
