Complete the following exercise. Submit journal entries in an Excel file and written segments in an MS Word document. Label each question clearly.
Attachmemnt contains the spreadsheets you will need for this exercise.
Assume that the following facts pertain to a noncancelable lease agreement between Fifth-Third Leasing Company and Bob Evans Farms, a lessee.
Inception date
January 1, 2012
Annual lease payment due at the beginning of each year, beginning with January 1, 2012
$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, 2012
$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.
Using the spreadsheet Lease Amort Schedule, prepare an amortization schedule that would be suitable for the lessee for the lease term.
Using the spreadsheet Journal Entries, prepare the journal entries for the lessee for 2012 and 2013 to record the lease agreement and all expenses related to the lease. Assume the lessee’s annual accounting period ends on December 31 and that reversing entries are used when appropriate.
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