The Abercrombie \& Fitch \(10-\mathrm{K}\) report contains the following footnote relating to its leasing activities This is the only information it discloses relating to its leasing activity.

\section*{Required}

a. What lease assets and lease liabilities does Abercrombie report on its balance sheet? How do we know?

b. What effect does the lease classification have on A\&F's balance sheet? Over the life of the lease, what effect does this classification have on the company's net income?

c. Using a \(6 \%\) discount rate, estimate the assets and liabilities that A\&F fails to report as a result of its off-balance-sheet lease financing.

d. What adjustments would we consider to A\&F's income statement corresponding to the adjustments we would make to its balance sheet in part \(c\).

e. Indicate the direction (increase or decrease) of the effect that capitalizing these leases would have on the following financial items and ratios for A\&F: return on equity (ROE), net operating profit after tax (NOPAT), net operating assets (NOA), net operating profit margin (NOPM), net operating asset turnover (NOAT), and measures of financial leverage.

Transcribed Image Text:

At February 2, 2008, the Company was committed to non-cancelable leases with remaining terms of one to 20 years. A summary of operating lease commitments under non-cancelable leases follows (thousands): 2008 $254,456 2009 263,179 2010 252,749 2011 235,080 2012 214,914 Thereafter. 953,417