Reference no: EM132784847
Question - Assume the Abercrombie & Fitch 10-K report contains the following footnote relating to its leasing activities. This is the only information it discloses relating to its leasing activity.
At January 28, 2017, the Company was committed to non-cancelable leases with remaining terms of one to 15 years. A summary of operating lease commitments under non-cancelable leases follows (thousands):
2017 $187,674
2018 $187,397
2019 $178,595
2020 $169,856
2021 $155,670
Thereafter $538,635
Assuming that its operating leases relate to real estate, and that A&F depreciated such assets on a straight-line basis with no salvage value and useful life of 8 years, estimate the effect on the company's 2017 income before tax of capitalizing these operating leases. Use a 7% discount rate and round remaining lease life to the nearest whole year.
a. Reduce income before taxes by $10,585,000
b. Increase income before taxes by $187,674,000
c. Reduce income before taxes by $187,674,000
d. Reduce income before taxes by $198,259,000
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