Non-cancelable lease agreement

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Reference no: EM13951061

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, linked here, 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.

Reference no: EM13951061

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