Sandra Company and Nova Inc. each signed lease agreements on January 1, 2017. Nova's lease qualified for capital lease treatment, but Sandra's lease did not. All other information for both companies is identical. Payments on each lease were due at the end of each year. The following information is from each company's December 31, 2016, financial statements:

_________________________________Sandra_________________ Nova

Current assets.................................$ 2,000........................$ 2,000

Total assets......................................5,000..........................5,000

Current liabilities...............................2,000..........................2,000

Total liabilities..................................2,500..........................2,500

Sales............................................10,500........................10,500

Required:

1. Based on this information, what will be the impact of the lease transaction on Nova's current ratio and debt-to-equity ratio on January 1, 2017, immediately after signing the lease under ASC 840?

2. What will be the impact of the lease for Nova on the total asset turnover ratio for 2017?

3. How would Sandra's ratio effects differ from Nova's? (Hint: Compute Nova's ratios before and after the capital lease transaction and assume that the lease liability and asset were recorded at $1,000.)

4. How would your answer to requirement 3 change if both companies were using ASU 2016-02 (ASC 842)?