E10-29. Analyzing and Interpreting Footnote on Operating and Capital Leases

Verizon Communications Inc. provides the following footnote relating to adoption of the new lease accounting standards (Topic 842) in its 10-Q report for the quarter ended March 31, 2019.

1. What is the amount of the right-of-use asset the company added to its balance sheet upon adoption of the new standard?

2. How will Verizon treat the right-of-use asset on the balance sheet during the life of the lease?

3. Assume the right-of-use assets had a weighted average lease term of 12 years. Approximate the ef-fect the operating leases had on Verizons income statement in Q1 2019.

4. What is the amount of the total operating lease liabilities the company added to its balance sheet upon adoption of the new standard? Explain what this amount represents.

5. The company decided to adopt the standard with a modified retrospective method and did not adjust numbers on the comparative balance sheet. What analysis challenges does this create?

The cumulative after-tax effect the changes made to our condensed consolidated balance sheet for the adoption of Topic 842 were as follows: At December 31, 2018 At January 1, 2019 $ 5,453 ($ millions) Prepaid expenses and other. .. Operating lease right-of-use assets Other assets ... Accounts payable and accrued liabilities Other current liabilities Current operating lease liabilities Deferred income taxes. Noncurrent operating lease liabilities Other liabilities Retained earnings Noncontrolling interests 11,717 22,501 8,239 Adjustments due to Topic 842 $ (329) 23,241 (2,048) (3) (2) 2,931 139 19,203 (1,815) $5,124 23,241 9,669 22,498 8,237 2,931 33,934 19,203 12,107 43,952 1,566 33,795 13,922 43,542 1,565 410 1 Rent expense for operating leases is recognized on a straight-line basis over the term of the lease and is included in either Cost of services or Selling, general and administrative expense in our condensed consolidated statements of income, based on the use of the facility on which rent is being paid