As a loan officer for First Bank, you're evaluating Newton Co.'s financial statements. Your evaluation reveals that

Question:

As a loan officer for First Bank, you're evaluating Newton Co.'s financial statements. Your evaluation reveals that Newton has no capital leases recorded on its financial statements. To effectively evaluate Newton's financial position, you've decided to constructively capitalize Newton's operating leases in accordance with ASC 842. The following information is available from Newton's financial statements for the year ended December 31, 2017:

Minimum Operating

Year ______________________________Lease Payments

2018..........................................................$ 500

2019............................................................450

2020............................................................410

2021............................................................410

2022.............................................................320

After 2022...................................................2,880

Total........................................................$ 4,970

Required:

1. Assuming that Newton's long-term debt rate is 8%, estimate its constructively capitalized operating lease liability under ASU 2016-02 (ASC 842).

2. What would be the right-of-use asset under ASU 2016-02 (ASC 842)?

3. How will constructive capitalization affect Newton Co.'s debt-to-equity ratio?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...