Problem 1
Panda Inc.'s 10-K report contains the following footnote relating to its leasing activities:
At December 31, 2013, the company was committed to non-cancellable leases with remaining terms of one to 15 years. A summary of operating lease commitments under non-cancellable leases follows:
|
Fiscal Year
|
Operating
Leases
|
|
2014
|
$ 250,000
|
|
2015
|
300,000
|
|
2016
|
275,000
|
|
2017
|
225,000
|
|
2018
|
200,000
|
|
Thereafter
|
800,000
|
Required
a.) What is the value of lease assets and liabilities reported on the company's balance sheet?
b.) Assuming a 5% discount rate, estimate the amount of assets and liabilities that the company avoids reporting by using off-balance-sheet financing.
c.) What adjustments would you consider making to the company's income statement? d.) How would including the assets and liabilities affect the following ratios:
i. Return on Equity
ii. Net operating profit after tax
iii. Debt to Equity
Problem 2
Giraffe Inc.'s 10-K report contains the following footnote relating to its leasing activities:
At March 31, 2013, the company was committed to non-cancellable leases with remaining terms of one to 10 years. A summary of operating lease commitments under non-cancellable leases follows (in thousands):
|
Fiscal Year
|
Operating
Leases
|
|
2014
|
$ 185
|
|
2015
|
200
|
|
2016
|
195
|
|
2017
|
190
|
|
2018
|
210
|
|
Thereafter
|
630
|
Required
a.) Assuming a 9% discount rate, estimate the amount of assets and liabilities that the company avoids reporting by using off-balance-sheet financing.
b.) What adjustments would you consider making to the company's income statement? c.) How would including the assets and liabilities affect the following ratios:
i. Return on Equity
ii. Net operating profit after tax
iii. Debt to Equity ratio
Problem 3
Airco's 10-K report reveals the following leasing footnote:
The minimum future lease payments under our capital and operating leases were as follows (in thousands):
|
Fiscal Year
|
Capital Leases
|
Operating
Leases
|
|
2014
|
$25
|
$ 700
|
|
2015
|
30
|
600
|
|
2016
|
20
|
550
|
|
2017
|
15
|
600
|
|
2018
|
10
|
650
|
|
Thereafter
|
30
|
1,950
|
|
Subtotal
|
130
|
$4,900
|
|
Less: imputed interest
|
(20)
|
|
|
Present value
|
$110
|
|
Required
a.) What is the balance of lease liabilities reported on the company's balance sheet? b.) Compute the implicit discount rate used by the company for its capital leases.
c.) Estimate the amount of assets and liabilities that the company avoids reporting by using off-balance-sheet financing.
d.) What adjustments would you consider making to the company's income statement? e.) How would including the assets and liabilities affect the following ratios:
i. Return on Equity
ii. Net operating profit after tax
iii. Debt to Equity ratio
Problem 4
Groundco.'s 10-K report reveals the following leasing footnote:
The minimum future lease payments under our capital and operating leases were as follows:
|
Fiscal Year
|
Capital Leases
|
Operating
Leases
|
|
2014
|
$5,000
|
$ 38,000
|
|
2015
|
3,000
|
42,000
|
|
2016
|
2,500
|
34,000
|
|
2017
|
2,700
|
51,000
|
|
2018
|
2,300
|
33,000
|
|
Thereafter
|
4,600
|
132,000
|
|
Subtotal
|
20,100
|
$320,000
|
|
Less: imputed interest
|
(5,000)
|
|
|
Present value
|
$15,100
|
|
Required
a.) What is the balance of lease liabilities reported on the company's balance sheet? b.) Compute the implicit discount rate used by the company for its capital leases.
c.) Estimate the amount of assets and liabilities that the company avoids reporting by using off-balance-sheet financing.
d.) What adjustments would you consider making to the company's income statement? e.) How would including the assets and liabilities effect the following ratios:
i. Return on Equity
ii. Net operating profit after tax
iii. Debt to Equity ratio