I would like help in the steps on calculating the discount rate and the adjusting journal entries required to capitalize operating leases. Relevant information is provided in the attachment

ACCT3013 Financial Statement Analysis Workshop Accounting adjustments [For enquiries please contact zihang.peng@sydney.edu.au] Tutorial assignment W4E1. Adjusting for operating leases Airline companies typically do not own their aircrafts. Rather, they lease aircrafts from commercial lessors (e.g. General Electric's finance subsidiary). According to US GAAP, companies are required to disclose their lease information in the footnotes of their financial statements. Recall from ACCT2011 that leases can be classified into finance leases (or capital leases in American English) and operating leases (US GAAP and IFRS apply virtually the same rules to leases). Airlines may structure their lease contracts to skilfully avoid the capitalization requirement for capital leases. The footnote on leases of the 2016 annual report of Delta Air Lines, a major US airline, is provided below: ------------------------------------------2016 ANNUAL REPORT------------------------------------------------NOTE 7 . LEASE OBLIGATIONS We lease aircraft, airport terminals, maintenance facilities, ticket offices and other property and equipment from third parties. Rental expense for operating leases, which is recorded on a straight-line basis over the life of the lease term, totaled $1.3 billion for the year ended December 31, 2016 and $1.2 billion for the years ended December 31, 2015 and 2014 . Amounts due under capital leases are recorded as liabilities, while assets acquired under capital leases are recorded as property and equipment. Amortization of assets recorded under capital leases is included in depreciation and amortization expense. Our airport terminal leases include contingent rents, which vary based upon facility usage, enplanements, aircraft weight and other factors. Many of our aircraft, facility and equipment leases include rental escalation clauses and/or renewal options. Our leases do not include residual value guarantees and we are not the primary beneficiary in or have other forms of variable interest with the lessor of the leased assets. As a result, we have not consolidated any of the entities that lease to us. The following tables summarize our minimum rental commitments under capital leases and noncancelable operating leases (including certain aircraft flown by regional carriers) with initial or remaining terms in excess of one year for the years succeeding December 31, 2016 : Capital Leases (in millions) 2017 2018 2019 2020 2021 Thereafter Total minimum lease payments Less: amount of lease payments representing interest Present value of future minimum capital lease payments Less: current obligations under capital leases Long-term capital lease obligations Total $ $ 145 85 60 43 24 21 378 (54) 324 (122) 202 Operating Leases Delta Lease Payments (1) (in millions) 2017 2018 2019 2020 2021 Thereafter Total minimum lease payments (1) (2) $ $ Contract Carrier Aircraft Lease Payments 1,302 $ 1,194 1,084 962 766 6,533 11,841 $ (2) Total 270 $ 249 220 171 96 248 1,254 $ 1,572 1,443 1,304 1,133 862 6,781 13,095 Includes payments accounted for as construction obligations. Represents the minimum lease obligations under our contract carrier agreements with Compass Airlines, LLC, ExpressJet Airlines, Inc., GoJet Airlines, LLC, Republic Airline, Inc. (as successor by merger to Shuttle America Corporation) and SkyWest Airlines, Inc. ------------------------------------------2015 ANNUAL REPORT------------------------------------------------NOTE 7 . LEASE OBLIGATIONS We lease aircraft, airport terminals, maintenance facilities, ticket offices and other property and equipment from third parties. Rental expense for operating leases, which is recorded on a straight-line basis over the life of the lease term, totaled $1.2 billion for the years ended December 31, 2015 and 2014 and $1.1 billion for the year ended December 31, 2013 . Amounts due under capital leases are recorded as liabilities, while assets acquired under capital leases are recorded as property and equipment. Amortization of assets recorded under capital leases is included in depreciation and amortization expense. Our airport terminal leases include contingent rents, which vary based upon facility usage, enplanements, aircraft weight and other factors. Many of our aircraft, facility and equipment leases include rental escalation clauses and/or renewal options. Our leases do not include residual value guarantees and we are not the primary beneficiary in or have other forms of variable interest with the lessor of the leased assets. As a result, we have not consolidated any of the entities that lease to us. The following tables summarize our minimum rental commitments under capital leases and noncancelable operating leases (including certain aircraft flown by regional carriers) with initial or remaining terms in excess of one year for the years succeeding December 31, 2015 : Capital Leases (in millions) 2016 2017 2018 2019 2020 Thereafter Total minimum lease payments Less: amount of lease payments representing interest Present value of future minimum capital lease payments Less: current obligations under capital leases Long-term capital lease obligations Total $ $ 183 114 56 41 29 39 462 (79) 383 (148) 235 Operating Leases Delta Lease Payments (1) (in millions) 2016 2017 2018 2019 2020 Thereafter Total minimum lease payments (1) (2) $ $ Contract Carrier Aircraft Lease Payments 1,258 $ 1,105 993 899 814 5,839 10,908 $ (2) 325 $ 335 314 259 239 381 1,853 $ Total 1,583 1,440 1,307 1,158 1,053 6,220 12,761 Includes payments accounted for as construction obligations. Represents the minimum lease obligations under our contract carrier agreements with Compass Airlines, LLC, ExpressJet Airlines, Inc., GoJet Airlines, LLC, Shuttle America Corporation (\"Shuttle America\") and SkyWest Airlines, Inc. Suppose you are an analyst following Delta Air Line, and you believe all its operating leases are of the nature of capital leases. Therefore, you decide to capitalize all its operating leases for your analysis. Additional information & assumptions Recapitalized operating lease asset is 80% of the existing operating lease liability if the operating leases were capitalized. The difference between the lease asset and lease liability reflects accumulated depreciation and impairments from previous years. New leases initiated in 2016 are assumed to take effect from the end of 2016. Recapitalized lease assets are depreciated over a useful life of 10 years. Lease obligations due after 5 years from the reporting date (\"thereafter\") are evenly distributed to the next 8 years. Ignore any tax effect. Required Prepare the adjusting journal entries required to capitalize Delta's operating leases, and verbally describe the impact of the recapitalization of operating leases on the 2016 financial statement of Delta Air Line. [For hints, read the notes below.] Notes on leases Accounting standards (US GAAP and IFRS-based standards) classify leases into operating leases and capital leases. A capital lease is in fact a financing transactionin the sense that it is equivalent to borrowing funds from financiers and then purchase the asset using the borrowed funds. Many firms have incentives to avoid its lease transactions to be classified as capital leases. One key consideration for this preference is that the firm profitability appears more \"robust\