OPERATIONAL LEASES TO CAPITAL LEASES

chrisp2010

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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