Costco Wholesale Corporation discloses the following in footnotes to its 10-K report relating to its leasing activities.
Question:
Costco Wholesale Corporation discloses the following in footnotes to its 10-K report relating to its leasing activities.
At September 2, 2018, we operated 762 membership warehouses.
Own Land and Building | Lease Land and/or Building | Total | |
---|---|---|---|
United States and Puerto Rico | 426 | 101 | 527 |
Canada | 86 | 14 | 100 |
Mexico | 38 | 1 | 39 |
United Kingdom | 22 | 6 | 28 |
Japan | 12 | 14 | 26 |
Korea | 11 | 4 | 15 |
Taiwan | - | 13 | 13 |
Australia | 7 | 3 | 10 |
Spain | 2 | - | 2 |
Iceland | - | 1 | 1 |
France | 1 | - | 1 |
Total | 605 | 157 | 762 |
At September 2, 2018, our commitments to make future payments under contractual obligations were as follows:
Payments Due by Fiscal Year | |||||
---|---|---|---|---|---|
Contractual obligations | 2019 | 2020 to 2021 | 2022 to 2023 | 2024 and thereafter | Total |
Operating leases | $227 | $407 | $358 | $2,215 | $3,207 |
Capital lease obligations | 34 | 71 | 72 | 647 | 824 |
a. From these disclosures it appears that Costco has not yet adopted the new leasing standard. How do we know this?
Had Costco adopted the new standard, capital lease obligations and finance lease obligations would be reported.
Had Costco adopted the new standard, operating leases and finance lease obligations would be reported.
Had Cost adopted the new standard, operating leases, capital lease obligations, and finance lease obligations would be reported.
Based on the lease types disclosed, it appears Costco has adopted the new standard.
b. How would Costco determine if each of the lease contracts listed under Lease Land and/or Building would be a finance lease or an operating lease?
Finance leases meet one or more of five criteria. Which of the following is not one of the criteria?
The lease term is for a major part of the remaining economic life of the underlying asset.
The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already included in the lease payments equals or exceeds substantially all of the fair value of the underlying asset.
The underlying asset is of such that the company expects the asset to have an alternative use to the lessor at the end of the lease term.
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
c. From the disclosures details, do you think the Lease Land and/or Building leases are operating or finance lease?
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella