Question

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, 2017 Residual value of equipment at end of lease term, guaranteed by the lessee $50,000 Lease term 6 years Economic life of leased equipment 8 years Fair value of asset at January 1, 2017 $400,000 Lessor’s implicit rate 10% 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, found in the link below, prepare an amortization schedule that would be suitable for the lessee for the lease term.m. Using the spreadsheet Journal Entries, prepare the journal entries for the lessee for 2017 and 2018 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.

Answer 1

Amortisation Table

Why a capital lease

Journal Entries 2017

Journal Entries 2018