Suppose that you are a stock analyst and you are evaluating a company that has a significant number of operating leases.
Required:
a. Discuss the potential misstatement of the financial statements that may occur because of this treatment. Specifically, address the impact of this type of accounting on the debt to total assets ratio and return on total assets ratio.
b. Using disclosures provided in the notes to the financial statements, explain how you could adjust the statements to address the issues discussed in part “a.”