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Prepare the journal entry to record initial lease liability

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Reference no: EM132419449

Problem: Kingbird, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $20,000 from United Corporation. The agreement stipulates the following.

  • Rental payments of $4,638 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease.
  • Kingbird must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $600, though these costs vary from year to year.
  • Kingbird must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse.
  • Kingbird paid legal fees of $1,000 in executing the lease.
Required:

Question: Assuming Kingbird's incremental borrowing rate is 8% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Kingbird. Need to learn HOW to solve for the answer.

Reference no: EM132419449

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