Analyzing, Interpreting, and Capitalizing Operating Leases Nike, Inc. reports the following data concerning leases in its 2014 10-K. Note 14-Commitments and Contingencies The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 20 years after May 31, 2014... Amounts of minimum future annual rental commitments under noncancelable operating leases in each of the five years ending May 31, 2015 through 2019 are $427 million, $399 million, $366 million, $311 million, $251 million, respectively, and $1,050 million in later years. Required a. What adjustment(s) might you consider to Nike's balance sheet given this information and assuming that Nike's discount rate is 497 Use a finanical calculator or Excel to compute. Do not round until your final answer. Round to the nearest whole number. Asset and Liability Adjustments b. Show how the amount computed in part a would be reported in the balance sheet using the financial statement effects template. Balance Sheet Income Statement Transaction Cash Asset + Noncash Assets - Liabilities + Contrib. Capital + Earned Capital Revenue Expenses - Net Income To capitalize operating leases 5 - 5 c. Prepare journal entries to record the capitalization of these operating leases at the end of fiscal 2014. What journal entries would be required to record lease payments and lease related expenses in 2015 if these leases were accounted for as capital leases? Assume straight-line depreciation and a ten-year life. Round your answers to the nearest dollar. Description Debit Credit To capitalize the leases. To depreciate the assets. 3 Lease liability To record the lease payment. d. Post the journal entries from partc to the appropriate T-accounts. Cash (A) Leased Asset (A) Accumulated Depreciation (XA) Lease Liability (L) interest Expense (E) Den Depreciation Expense (E) Analyzing, Interpreting, and Capitalizing Operating Leases Nike, Inc. reports the following data concerning leases in its 2014 10-K. Note 14-Commitments and Contingencies The Company leases space for certain of its offices, warehouses and retail stores under leases expiring from 1 to 20 years after May 31, 2014... Amounts of minimum future annual rental commitments under noncancelable operating leases in each of the five years ending May 31, 2015 through 2019 are $427 million, $399 million, $366 million, $311 million, $251 million, respectively, and $1,050 million in later years. Required a. What adjustment(s) might you consider to Nike's balance sheet given this information and assuming that Nike's discount rate is 497 Use a finanical calculator or Excel to compute. Do not round until your final answer. Round to the nearest whole number. Asset and Liability Adjustments b. Show how the amount computed in part a would be reported in the balance sheet using the financial statement effects template. Balance Sheet Income Statement Transaction Cash Asset + Noncash Assets - Liabilities + Contrib. Capital + Earned Capital Revenue Expenses - Net Income To capitalize operating leases 5 - 5 c. Prepare journal entries to record the capitalization of these operating leases at the end of fiscal 2014. What journal entries would be required to record lease payments and lease related expenses in 2015 if these leases were accounted for as capital leases? Assume straight-line depreciation and a ten-year life. Round your answers to the nearest dollar. Description Debit Credit To capitalize the leases. To depreciate the assets. 3 Lease liability To record the lease payment. d. Post the journal entries from partc to the appropriate T-accounts. Cash (A) Leased Asset (A) Accumulated Depreciation (XA) Lease Liability (L) interest Expense (E) Den Depreciation Expense (E)
