AC 302 WEEK 10 Exercise

Name:						
Exercise:	"E21-3, Lessee Entries; Capital Lease with Executory
           Costs and Unguaranteed Residual Value"					
						
Course:						
Date:						
						
Assume that on January 1, 2011, 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:						
						
						
1. The agreement requires equal rental payments of				$90,000 	beginning on January 1, 2011.	
2. The fair value of the building on January 1, 2011, is				$5,50,000 		
"3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of
"						
$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:						
Prepare the journal entries on the lessee- books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2011 and 2012.  Kimberly-Clark- corporate year end is December 31.