P10-40. Analyzing, Interpreting and Capitalizing Operating Leases Goldman Sachs' 10-K report contains the following lease footnote. This is the only information it discloses relating to its leasing activity The firm has contractual obligations under long-term noncancelable lease agreements for office space expiring on various dates through 2069. Rent charged to operating expense was $249 mil- lion for 2015. The table below presents future minimum rental payments, net of minimum sublease rentals. $ in millions As of December 2015 2016.... 2017 2018 $0 317 313 301 258 . 226 . 1160 2019. 2020 2021-thereafter. Total..... .$2,575 Required a. What lease assets and lease liabilities does Goldman Sachs report on its balance sheet? How do we know? b. What effect does the lease classification have on Goldman Sachs'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 and rounding the remaining lease life to the nearest whole year, estimate the assets and liabilities that Goldman Sachs fails to report as a result of its off-balance-sheet lease financing d.What adjustments would we consider to Goldman Sachs' 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 Goldman Sachs: return on equity (ROE), net operat ing profit after tax (NOPAT), net operating assets (NOA), net operating profit margin (NOPM), net operating asset turnover (NOAT), and measures of financial leverage P10-40. Analyzing, Interpreting and Capitalizing Operating Leases Goldman Sachs' 10-K report contains the following lease footnote. This is the only information it discloses relating to its leasing activity The firm has contractual obligations under long-term noncancelable lease agreements for office space expiring on various dates through 2069. Rent charged to operating expense was $249 mil- lion for 2015. The table below presents future minimum rental payments, net of minimum sublease rentals. $ in millions As of December 2015 2016.... 2017 2018 $0 317 313 301 258 . 226 . 1160 2019. 2020 2021-thereafter. Total..... .$2,575 Required a. What lease assets and lease liabilities does Goldman Sachs report on its balance sheet? How do we know? b. What effect does the lease classification have on Goldman Sachs'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 and rounding the remaining lease life to the nearest whole year, estimate the assets and liabilities that Goldman Sachs fails to report as a result of its off-balance-sheet lease financing d.What adjustments would we consider to Goldman Sachs' 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 Goldman Sachs: return on equity (ROE), net operat ing profit after tax (NOPAT), net operating assets (NOA), net operating profit margin (NOPM), net operating asset turnover (NOAT), and measures of financial leverage
