On its balance sheet in its 2013 financial statements, Wal-Mart reported about $ 2.5 billion of property under capital leases, representing only about 1% of its total assets. Use Wal-Mart€™s lease disclosures and information below to address the following questions. Wal-Mart Stores, Inc. Excerpt from January 31, 2014, Financial Statements
11 Commitments
The Company has long-term leases for stores and equipment. Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short-term rental arrangements were $ 2.8 billion, $ 2.6 billion and $ 2.4 billion in fiscal 2014, 2013 and 2012, respectively.
Aggregate minimum annual rentals at January 31, 2014, under non-cancelable leases are as follows:

Required:
a. Explain the financial statement effects of an operating lease versus a capital lease on the balance sheet and income statement. What are the financial statement effects of capitalizing operating expenses?
b. What are the journal entries to reflect scheduled payments during fiscal 2015 for operating and capital leases in place at the end of fiscal 2014? Wal-Mart reported $ 309 billion of obligations under capital leases due within one year on its January 31, 2014, balance sheet.
c. Using the information from part b, estimate Wal-Mart€™s average interest rate on capital leases.
d. If Wal-Mart had treated operating leases as capital leases, what journal entry would it make to record the leases? Because Wal-Mart€™s minimum lease payments on its operating leases are decreasing every year, assume the lease payment in the fifth year continues into the future. Use the discount rate from part c. Assume all payments are made at year-end.
e. Based on your answer to part c, determine the interest expense and depreciation expense that Wal-Mart would record in the following year.
f. What would be the change in assets, liabilities, and equity if Wal-Mart had capitalized the operating leases? What is Wal-Mart€™s debt-to-equity ratio and total liabilities-to-total-assets ratio? If Wal-Mart had capitalized the operating leases, what would its debt- to- equity ratio and total liabilities-to-total-asset ratio be? Comment on the differences.
g. Assume Wal-Mart€™s net income in fiscal 2014 is the same as fiscal 2014. If Wal-Mart had capitalized the operating leases, what would be the change in fiscal 2014 net income? Assume a 35% tax rate.
h. Compare Wal-Mart€™s income statement and balance sheet effects of capitalizing operating leases with Target€™s in Example 18.16 in the text.

Amounts in miions) Fiscal Year 2015 2016 2017 2018 2019 Thereafter Total minimum rentals Less: Estimated executory costs Operating Capital Lees Leases S 1,734 S 586 558 519 479 1,632 1,462 1,314 1,192 9,836 3,711 17170 $6291 Net minimum lease payments Less: Imputed interest Present value of minimum lease payments 6,231 3,134 $3,097 Financial Statement Item at or for the year ended January 31, 2014 (In millions) Net Income Total Assets Total Liabilities Total Equity Amount s 16,022 $204,751 $123,412 81,339