On its balance sheet in its 2013 financial statements, Wal-Mart reported about $ 2.5 billion of property

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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:
On its balance sheet in its 2013 financial statements, Wal-Mart
On its balance sheet in its 2013 financial statements, Wal-Mart

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.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Related Book For  answer-question

Intermediate Accounting

ISBN: 978-0132162302

1st edition

Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

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