FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Bartleby Related Questions Icon

Related questions

bartleby

Concept explainers

Question

A) Compute the present value of operating lease obligations using an 8% discount rate for Jarir
Inc. and Extra Inc. as of January 31, 2009. Assume that all cash flows occur at the end of each 
year. Also assume that the minimum lease payment each year after 2013 equals $360 million 
per year for three years for Jarir Inc. and $333.5 million for four years for Extra Inc.. (This 
payment scheduling assumption can be obtained by assuming that the payment amount for 
2013 continues until the aggregate payments after 2013 have been made, rounding the number 
of years upward, and then assuming level payments for that number of years. For Jarir Inc.: 
$1,080/$386 = 2.8 years. Rounding up to three years creates a three-year annuity of $1,080/3 
years = $360 million per year.

B) Compute each of the following ratios for Jarir, Inc. and Extra Inc. as of January 31, 2009, using 
the amounts originally reported in their balance sheets for the year.
(1) Liabilities to Assets Ratio = Total Liabilities/Total Assets
(2) Long-Term Debt to Long-Term Capital Ratio = Long-Term Debt/(Long-Term Debt +
Shareholders’ Equity)

C) Repeat Requirement (b) but assume that these firms capitalize operating leases.

D) Comment on the results from Requirements (b) and (c).

Question# 2
Some retailing companies own their own stores or acquire their premises under capital leases. Other
retailing companies acquire the use of store facilities under operating leases, contracting to make future
payments. An analyst comparing the capital structure risks of retailing companies may want to adjust
reported financial statement data to put all firms on a comparable basis. Certain data from the financial
statements of Jarir Inc. and Extra Inc. follow (amounts in millions).
Balance Sheet as of January 31, 2009
Jarir Inc.
Extra Inc.
Current Liabilities
$2,158
$1,255
Long-term debt
2,897
Other non-current liabilities
1,019
946
Sharcholders' equity
4,387
1,874
Total
$7,564
$6,972
Minimum Payment under operating leases
2009
$1,069
$478
2010
927
455
2011
712
416
2012
520
373
2013
386
341
After 2013
$1,080
$1,334
Total
$4,694
$3,397
expand button
Transcribed Image Text:Question# 2 Some retailing companies own their own stores or acquire their premises under capital leases. Other retailing companies acquire the use of store facilities under operating leases, contracting to make future payments. An analyst comparing the capital structure risks of retailing companies may want to adjust reported financial statement data to put all firms on a comparable basis. Certain data from the financial statements of Jarir Inc. and Extra Inc. follow (amounts in millions). Balance Sheet as of January 31, 2009 Jarir Inc. Extra Inc. Current Liabilities $2,158 $1,255 Long-term debt 2,897 Other non-current liabilities 1,019 946 Sharcholders' equity 4,387 1,874 Total $7,564 $6,972 Minimum Payment under operating leases 2009 $1,069 $478 2010 927 455 2011 712 416 2012 520 373 2013 386 341 After 2013 $1,080 $1,334 Total $4,694 $3,397
Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education