Cineplex Inc. is the largest motion picture exhibitor in Canada and owns, leases, or has joint-venture interests in over 161 theatres with 1,630 screens. Exhibits 10-12A and B contain Notes 18 and 25 from the company€™s 2013 annual report detailing Cineplex€™s lease arrangements.

Required:
a. Read Note 18 in Exhibit 10-12A and explain, in your own words, how Cineplex accounts for the theatres and theatre equipment under finance leases. Be sure to discuss the impacts, if any, that this treatment would have on the company€™s statement of financial position and statement of income.
b. After reading Note 25, consider where Cineplex operates its theatres, perhaps thinking about a theatre in your own city. Explain why it is reasonable that most of the company€™s leases would be operating leases rather than finance leases.
c. Explain, in your own words, how Cineplex accounts for leases. Be sure to discuss the impacts, if any, that this treatment would have on the company€™s statement of financial position and statement of income.

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EXHIBIT 10-12A EXCERPT FROM CINEPLEX INC.'S 2013 ANNUAL REPORT, NOTE 18 18 FINANCE LEASE OBLIGATIONS Cineplex has two non-cancellable finance leases for theatres and a number of small equipment leases for various periods, including renewal options. Future minimum payments, by year and in the aggregate, under non-cancellable finance leases are as follows: S 3,779 3,894 3,973 3,961 3,955 5,793 25,355 5,239 20,116 2,394 $17,722 2013 2014 2015 2016 2017 Thereafter Less: Amount representing interest (average rate of 7.3%) Less: Current portion Until 2012, Cineplex had eight finance leases for theatre equipment. In the first quarter of 2012, Cineplex entered into agreements with the lessor of the theatre equipment to purchase new equipment in 2012 for seven of the leases replacing the leased equipment. In the third quarter of 2013, the remaining finance lease was settled through the same agreement. Interest expense related to finance lease obligations was $1,576 for the year ended December 31, 2013 (2012 $1,790). T 10-12B EXCERPT FROM CINEPLEX INC.'S 2013 ANNUAL REPORT, NOTE 25 25 LEASES Cineplex conducts a significant part of its operations in leased premises. Leases generally provide for minimum rentals and, in certain situations, percentage rentals based on sales volume or other identifiable targets; may include escalation clauses and certain other restrictions; and may require the tenant to pay a portion of realty taxes and other property operating expenses. Lease terms generally range from 15 to 20 years and contain various renewal options, generally, in intervals of five to ten years. Certain theatre assets are pledged as security to landlords for rental commitments, subordinated to the Credit Facilities Cineplex's minimum rental commitments at December 31, 2013 under the above-mentioned operating leases are set forth as follows 2014 2015 2016 2017 2018 Thereafter S 141,669 143,776 144,974 141,601 131,481 708,705 $ 1,412,206 Minimum rent expense relating to operating leases on a straight-line basis in 2013 was $135,490 (2012 - $123,639). In addition to the minimum rent expense, in 2013 Cineplex incurred percentage rent charges of $2,072 (2012 $2,455)