Federated Investors, Inc. includes the following in its 2016 annual report:
The following is a schedule by year of future minimum payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2016:
Required:
a. Calculate the present value of operating lease payments using a discount rate of 6% and rounding the remaining lease term to the nearest whole year.
b. For 2016, the company reported total assets of $1,155.107 million and total liabilities of $527.961 million. What would total assets and total liabilities have been if the company had capitalized these leases. Does capitalizing make a significant difference on the company's balance sheet?
c. Assume that the leased equipment has a useful life of 13 years and no salvage value. Estimate the effect on net operating profit before tax of capitalizing these leases, assuming the rent expense in 2016 is equal to 2017 rent expense.
d. Explain how ROE, FLEV, RNOA, and NOAT would be affected if these leases are capitalized.

Question

Federated Investors, Inc. includes the following in its 2016 annual report: 
The following is a schedule by year of future minimum payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2016:
  Required: 
a. Calculate the present value of operating lease payments using a discount rate of 6% and rounding the remaining lease term to the nearest whole year.
b. For 2016, the company reported total assets of $1,155.107 million and total liabilities of $527.961 million. What would total assets and total liabilities have been if the company had capitalized these leases. Does capitalizing make a significant difference on the company's balance sheet?
c. Assume that the leased equipment has a useful life of 13 years and no salvage value. Estimate the effect on net operating profit before tax of capitalizing these leases, assuming the rent expense in 2016 is equal to 2017 rent expense.
d. Explain how ROE, FLEV, RNOA, and NOAT would be affected if these leases are capitalized.

Quizplus · Accepted Answer

The Answer of Federated Investors, Inc. includes the following in its 2016 annual report: 
The following is a schedule by year of future minimum payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2016:
  Required: 
a. Calculate the present value of operating lease payments using a discount rate of 6% and rounding the remaining lease term to the nearest whole year.
b. For 2016, the company reported total assets of $1,155.107 million and total liabilities of $527.961 million. What would total assets and total liabilities have been if the company had capitalized these leases. Does capitalizing make a significant difference on the company's balance sheet?
c. Assume that the leased equipment has a useful life of 13 years and no salvage value. Estimate the effect on net operating profit before tax of capitalizing these leases, assuming the rent expense in 2016 is equal to 2017 rent expense.
d. Explain how ROE, FLEV, RNOA, and NOAT would be affected if these leases are capitalized.