Impact of Accounting for Operating Leases as Capital Leases

Virtually all firms have some amount of commitment under operating leases. The change in debt ratios for some firms is relatively minor, as is the case for PepsiCo. For other firms, particularly airlines and retail stores, the effect can be significant. Even for firms for which the effect is relatively small, adding the effect of capitalizing operating leases to the effect of other off-balance-sheet obligations can result in a combined material effect. Thus, the ana-lyst should examine the effect of leases when assessing the risk and accounting quality of a firm's financial statements. The analyst should also consider the effects of off-balance-sheet leases when determining capital structure weights and debt costs for the weighted average cost of capital calculations used in enterprise valuation.

Questions and. Exercises

COMMQN EQUITY TRANSACTIONS. Describe the directional effect ncrease, decrease, or no effect) of each transaction on the components of the book value of common shareholders' equity shown in the chart on the next page.

a. Issuance of SI par value common stock at an amount greater than par value

b. Donation of land by a governmental unit to a corporation

c. Cash dividend declared

d. Previously declared cash dividend paid

e. Property dividend declared and paid

f. Large stock dividend declared and issued

g. Small stock dividend declared and issued

h. 2-for-I stock split announced and issue

i. Stock options granted

j. Recognition of compensation expense on stock options

k. Stock options exercised

I. Stock options expired

m. Treasury stock acquired (company uses the cost method)

n. Treasury stock in Transaction in reissued at an amount greater than original acqui-sition price

o. Treasury stock in Transaction m reissued at an amount less than the original acqui-sition price

p. Restricted stock issued (grant date)

q. Recognition of compensation expense related to restricted stock

r. Granting of stock appreciation rights to be settled with cash

s. Recognition of compensation expense on stock appreciation rights

t. Reacquisition and retirement of common stock at an amount greater than original issue price

Download:- Accounting assignment.pdf