OPERATIONAL LEASES TO CAPITAL LEASES
| FNCE 5880 | ||||||||||
| OPERATIONAL LEASES TO CAPITAL LEASES | ||||||||||
| 1 | Gelson’s Markets has listed operating leases on its financial statements. | |||||||||
| 2 | They have listed the value of operating leases for 2012 – through 2016 by each year and in total thereafter. | |||||||||
| 3 | There are no capital leases on its books at the present time. | |||||||||
| 4 | Use the operating lease figures for 2016 as the annual lease amounts for the future periods. | |||||||||
| 5 | Use 5.6% as the cost of capital to discount the lease payments. | |||||||||
| 6 | Use straight line depreciation to depreciate the leased assets over its life | |||||||||
| 7 | You are required to convert these operating leases into capital leases by year and analyze its effect | |||||||||
| on Gelson’s financial statements and key ratios for 2012. | ||||||||||
| 8 | Restate the income statement & balance sheet for 2012 after converting the operating leases to capital leases | |||||||||
| Year | Operating Leases | |||||||||
| (in millions of dollars) | ||||||||||
| 2012 | $275 | |||||||||
| 2013 | 237 | |||||||||
| 2014 | 425 | |||||||||
| 2015 | 279 | |||||||||
| 2016 | 325 | |||||||||
| Thereafter | 2178 | |||||||||
| INCOME STATEMENT: ($ in millions) | ||||||||||
| Before | After | |||||||||
| Sales | $20,000 | |||||||||
| Operating Expenses | 17500 | |||||||||
| Income before interest & taxes | 2500 | |||||||||
| Intest expense | 0 | |||||||||
| Income taxes | 698 | |||||||||
| Net Icome | $1,802 | |||||||||
| BALANCE SHEET: | ||||||||||
| Before | After | Before | After | |||||||
| Current Assets | $6,000 | Current Liabilities | $3,750 | |||||||
| Fixed Assets | 3100 | Long Term Liabilities | 700 | |||||||
| Stockholders Equity | 4650 | |||||||||
| Total Assets | $9,100 | Total Liab + Equity | $9,100 | |||||||
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