Question
At the end of 2018, Microsoft had a significant number of leases structured as operating leases that were affected by the new lease standard. Consider
At the end of 2018, Microsoft had a significant number of leases structured as operating leases that were affected by the new lease standard. Consider how the new lease standard changes certain financial ratios. Use the operating asset and lease amounts discussed in the class notes to complete the problem.
REQUIRED: How did the accounting change for operating leases affect the following financial ratios (ignore the exact dollar amounts; just indicate whether the ratio would increased or decreased and why the change occurred)?
- Debt to equity
- Debt ratio (i.e., debt to total assets)
- Cash flow per share
- Earnings per share (explain the early years of the lease and the later years in the lease) (That is, consider what happens to rent expense for an operating lease under the old standard versus interest expense and amortization expense under the new standard)
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