Reference no: EM132953246

During the first quarter of fiscal 2019, the Company adopted ASU 2016-02, Leases (Topic 842), which requires leases to be recognized on the balance sheet. The Company leases certain retail stores, warehouses, distribution centers, office space, land, and equipment under finance and operating leases. The table below presents the Company's operating lease-related assets and liabilities recorded on the balance sheet.

(in Millions) Classification May 3, 2019

Assets       
Operating lease right-of-use assets $3,926
Liabilities
Current operating lease liabilities $500
Noncurrent operating lease liabilities $4,064

Maturity of Lease Liabilities (in Millions)        Operating Leases
2019                                                                    $463
2020                                                                    $664
2021                                                                     $636
2022                                                                      $642
2023                                                                        $554
After 2023                                                                 $2,934
Total lease payments $5,893
Less: interest $(1,329)
Present value of lease liabilities $4,564

Use Excel to confirm that Lowe's capitalized its operating leases using a rate of about 4%. Note: The company discloses the remaining maturity of its operating leases is 10.68 years (after 2023), which can be used to determine the annual payment in years after 2023.

Problem 1: What effect did the initial capitalization of the operating leases have on Lowe's assets and liabilities?

Problem 2: How will Lowe's treat the operating right-of-use asset on its balance sheet over the life of the lease?

Problem 3: How will Lowe's treat the operating lease liability on its balance sheet over the life of the lease?