McDonald’s is one of the world’s most popular fast-food restaurants, offering good food and convenient locations. Effective management of its properties is a key to its success. As the following note in its current annual report indicates, McDonald’s both owns and leases property:
The Company owns and leases real estate primarily in connection with its restaurant business. The Company identifies and develops sites that offer convenience to customers and long-term sales and profit potential to the Company. The Company generally owns the land and building or secures long-term leases for restaurant sites, which ensures long-term occupancy rights and helps control related costs.
Required:
Should McDonald’s report lease obligations on its balance sheet? Explain. If the obligation should be reported as a liability, how should the amount be measured?