E$20\mathrm{.}4($LO$2,4)$ Lessee Entries, Finance Lease and Unguaranteed Residual Value

Assume that on December $31,2024,$ Kimberly$-$Clark Corp. signs a $10-$year,

noncancelable 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 beginning on

December $31,2024.$

$2$ The fair value of the building on December $31,2024$

Expected residual value

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 annual incremental borrowing rate

$8\%$

Lessor's implicit rate is not known by Kimberly$-$Clark.

Instructions

a$.$ 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 $2024,2025,$ and $2026.$ Kimberly$-$Clark's fiscal year$-$end is December $31.$

a$.$ What are the two amounts to be capitalized for this lease?

What is the Present value of minimum lease payments using Excel's PV function?

Lease Amortization Schedule $($table$)$ including: Date, Annual Lease Payment, Interest on Liability, Reduction of Lease Liability, Lease Liabiliity