Further analysis on Dot Com finds that the firm, on 1 st Jan 2020, has entered into
Question:
Further analysis on Dot Com finds that the firm, on 1st Jan 2020, has entered into an operating lease agreement for 4 years with equal annual payments of £1000 and the first payment on 29th Dec 2020. The firm has also entered into another operating lease agreement for 10 years with annual payments of £500 for the first five years and annual payments of £700 for the second five years. The second agreement was entered on 1st Jan 2017 and the first payment on 29th Dec 2017. The financial statement as of 31st Dec 2022 has included the lease payments under Sales, general and administrative expenses.
Suppose that an analyst decides to adjust the related financial statement items as of 31st Dec 2022 by converting from operating lease to finance lease. The analyst estimates the cost of borrowing for this firm as 5% per annum.
Calculate, for 31st Dec 2022,
1) the EBIT interest coverage ratio before and after the adjustment.
2) the amount that should be adjusted to operating cash flow and financing cash flow. lease payments under Sales, general and administrative expenses = 14,780
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones