| FNCE 5880 | |||||
| OPERATIONAL LEASES TO CAPITAL LEASES | |||||
| Gelson’s Markets has listed operating leases on its financial statements. | |||||
| They have listed the value of operating leases for | 2012 | 2016 | |||
| There are no capital leases on its books at the present time. | |||||
| Use the operating lease figures for 2016 as the annual lease amounts for the future periods. | |||||
| Use 5.6% as the cost of capital to discount the lease payments. | |||||
| Use straight line depreciation to depreciate the leased assets over its life | |||||
| 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. | |||||
| Restate the income statement & balance sheet for 2012 after converting the operating leases to capital leases | |||||
| Year | Operating Leases | ||||
| (in millions of dollars) | |||||
| $275 | |||||
| 2013 | 237 | ||||
| 2014 | 425 | ||||
| 2015 | 279 | ||||
| 325 | |||||
| Thereafter | 2178 | ||||
| INCOME STATEMENT: ($ in millions) | |||||
| Before | After | ||||
| Sales | $20,000 | ||||
| Operating Expenses | 17500 | ||||
| Income before interest & taxes | 2500 | ||||
| Intest expense | |||||
| Income taxes | 698 | ||||
| Net Icome | $1,802 | ||||
| BALANCE SHEET: | |||||
| 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 |
