Analyzing and Capitalizing Operating Lease Payments Disclosed in Footnotes Assume Costco Wholesale Corporation discloses the following in footnotes to its 10-K report relating to its leasing activities. Future minimum payments during the next five fiscal years and thereafter under non-cancelable leases with terms of at least one year, at August 31, 2010, were as follows ($ millions):

2011	$ 128
2012	130
2013	124
2014	112
2015	111
Thereafter	1,451
Total minimum payments	$ 2,056

Operating leases are not reflected on-balance-sheet. In our analysis of a company, we often capitalize these operating leases, that is, add the present value of the future operating lease payments to both the reported assets and liabilities. (a) Compute the present value of Costco's operating lease payments assuming a 5% discount rate and round the remaining lease term to thenearest whole year.(Use a financial calculator or Excel to compute. Do not round until your final answers. Round each answer to the nearest whole number.)

Year 1
Year 2
Year 3
Year 4
Year 5
After 5
Total*

* (Use subsequent rounded answers for calculation.)

(b) What effect does capitalization of operating leases have on Costco's total liabilities and total assets (it reported total liabilities and total assets of $11,408 million and $20,682 million, respectively)?

The company's total assets and total liabilities are increased by the present value of the capitalized leases. In its income statement, rent expense is replaced with interest expense.The company's total assets and total liabilities are increased by the present value of the capitalized leases. In its income statement, rent expense is replaced with depreciation and interest expense.The company's total assets and total liabilities are increased by the present value of the capitalized leases. There is no effect on the income statement.In its income statement, rent expense is replaced with depreciation and interest expense. There is no effect on the balance sheet.