Examine the information provided in Note 40 to Canadian Tire's financial statements on operating leases. a. What

Question:

Examine the information provided in Note 40 to Canadian Tire's on operating leases.
a. What is an operating lease and how is it accounted for?
b. What is the dollar amount of the operating leases Canadian Tire has entered into?
c. Suppose the operating lease payments reported in Note 40 were to be reported as capital leases:
i. What would the journal entry be on December 31, 2011 to record these leases as capital (finance) leases, assuming the leases went into effect on that date? As sume a of 10 percent and assume the payments to be made "there after" are evenly distributed over 2018 through 2025.
ii. What effect would classifying these leases as capital (finance) leases have on Canadian Tire's debt-to-equity ratio? Explain and show your calculations.
iii. Do you think that treating all leases as capital (finance) leases gives a better indication of an entity's debt load? Explain.

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