Professional Simulations Simulation 1 In this simulation, you are asked to address questions related to the accounting for leases. Prepare responses to all parts.

KWW_Professional_Simulation Accounting for Losses Time Remaining 2 hours 00 minutes Directions Station Explanation churc IN Assume that the following facts pertain to a non-cancelable lease agreement between Fifth-Third Leasing Company and Evans Farms, a lessee. Inception date Annual lease payment due at the beginning of each year, beginning with January 1, 2015 Residual value of equipment at end of lease term, guaranteed by the lessee Lease term Economic life of leased equipment Fair value of asset at January 1, 2015 Lessor's Implicit rate Lessee's Incremental borrowing rate January 1, 2015 81,365 50,000 6 years 6 years 400,000 12% 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. Use a computer spreadsheet to prepare an amortization schedule that would be suitable for the lessee for the lease term. Prepare the journal entries for the lessee for 2015 and 2016 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. (Round amounts to nearest euro.)