Annular flow is characterized by a high velocity gas core flow, with a thin liquid film around it, wetting the pipe wall. The presence of liquid droplets in the gas core has relevant impact on annular flow characteristics, such as pressure drop and liquid film wave properties. Droplets are usually created by shear at disturbance wave crests, along the gas-liquid interface. At the present work, vertical annular flow with droplet entrainment is studied using the 1-D Two-Fluid model. A droplet mass transfer model is developed and coupled to the Two-Fluid model. The resulting model allows capturing the automatic evolution of the gas-liquid interface, liquid film wave formation and the waves influence on droplet entrainment and deposition. A performance analysis in carried out for three droplet entrainment models available in literature, as well as one deposition model. Taking into account that droplets are created by disturbance wave crest shearing, model modifications are proposed, aiming to better capture the influence of liquid film waves on droplet entrainment and deposition mechanisms. Flow parameters such as pressure drop, film thickness and wave features are evaluated, showing good agreement with experimental data found in literature.