Reference no: EM131324690

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