Accounting for Leases -Journal Entry: Lease

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Complete the following questions. Submit journal entries in an Excel
Template, linked at the bottom of this page, and any written segments in
Excel’s comments function. Do not submit two separate documents, as
only one document can be accepted. For written answers, please make sure
your responses are well written, formatted per APA Requirements and have proper citations, if applicable.

Assume that the following facts pertain to a non-cancelable lease
agreement between Fifth-Third Leasing Company and Bob Evans Farms, a
lessee.

Inception date

January 1 2014

Annual lease payment due at the beginning of each year, beginning with January 1, 2014

$81,365

Residual value of equipment at end of lease term, guaranteed by the lessee

$50,000

Lease term

6 years

Economic life of leased equipment

6 years

Fair value of asset at January 1, 2014

$400,000

Lessor’s implicit rate

12%

Lessee’s incremental borrowing rate

12%

The lessee assumes responsibility for all
executory costs, which are expected to amount to $4,000 per year. The
asset will revert to the lessor at the end of the lease term. The lessee
has guaranteed the lessor a residual value of $50,000. The lessee uses
the straight-line depreciation method for all equipment.

  1. Using the Excel Template spreadsheet , prepare an amortization schedule that would be suitable for
    the lessee for the lease term.
  2. Using the same spreadsheet set up an area for journal entries,
    prepare the journal entries for the lessee for 2014 and 2015 to record
    the lease agreement and all expenses related to the lease. Record them
    clearly in that spreadsheet. Assume the lessee’s annual accounting
    period ends on December 31 and that reversing entries are used when
    appropriate.

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