1. Explain why we need to convert operating lease into capital lease before the implementation of current accounting standard for operating lease and capital lease
2. Prove that the amount of expenses recognized is the same for operating lease and capital lease

3. Convert the following operating leases into capital leases and describe the impact of the conversion on the company’s balance sheet on 12/31/2018 and income statement for the fiscal year ended on 12/31/2018 (operating lease versus capital lease) in terms of dollar amount.

• The company’s rent expense is $1,000 (million) in 2018
• The company pays all rent expenses in the year of incurrence at the end of each year
• The company’s effective annual interest rate is 5%
• Future minimum rent payments under existing operating leases are

Year	$million
2019	1,000
2020	1,000
2021	1,000
2022	1,000
2023	1,000
Thereafter (5 Years)	5,000