Problem 1: (15 points) Refer to the balance sheet and note 11 (Commitments) of Wal-Mart in Appendix. Required:

1. Did Wal-Mart report a liability for its operating lease on January 31, 2015 balance sheet? By how much?

2. Did Wal-Mart report a liability for its capital lease on January 31, 2015 balance sheet? By how much?

3. Did Wal-Mart report an asset for its operating lease on January 31, 2015 balance sheet? By how much?

4. Did Wal-Mart report an asset for its capital lease on January 31, 2015 balance sheet? By how much?

5. Assuming an interest rate of 5%, compute the present value of the operating lease commitments on January 31, 2015. Show all calculations for credit.

6. Calculate the Liabilities to Assets ratio and Long-term Debt Ratio for Wal-Mart as of January 31, 2015, using the amounts originally reported in its balance sheet for the year.

7. Assuming that Wal-Mart was required to capitalize its operating lease, calculate the companys 2015s Liabilities to Assets ratio and Long-term Debt Ratio.

8. Comment on the results from part 6 and 7.

Appendix Wal-Mart Stores, Inc.

Consolidated Balance Sheets

As of January 31, (Amounts in millions)

2015 2014

ASSETS Current assets: '

Cash and cash equivalents $ 9,135 $ 7,281

Receivables, net 6,778 6,677 '

Inventories 45,141 44,858

Prepaid expenses and other 2,224 1,909

Current assets of discontinued operations 460

Total current assets 63,278 61,185

Property and equipment: Property and equipment 177,395 173,089

Less accumulated depreciation (63,115) (57,725)

Property and equipment, net 114,280 115,364

Property under capital leases:

Property under capital leases 5,239 5,589

Less accumulated amortization (2,864) (3,046)

Property under capital leases, net 2,375 2,543

Goodwill 18,102 19,510

Other assets and deferred charges 5,671 6,149

Total assets $ 203,706 $ 204,751

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY

Current liabilities:

Short-term borrowings $ 1,592 $ 7,670

Accounts payable 38,410 37,415

Accrued liabilities 19,152 18,793

Accrued income taxes 1,021 966

Long-term debt due within one year 4,810 4,103

Obligations under capital leases due within one year 287 309

Current liabilities of discontinued operations 89

Total current liabilities 65,272 69,345

Long-term debt 41,086 41,771

Long-term obligations under capital leases 2,606 2,788

Deferred income taxes and other 8,805 8,017

Redeemable noncontrolling interest 1,491

Commitments and contingencies 8

Equity:

Common stock 323 323

Capital in excess of par value 2,462 2,362

Retained earnings 85,777 76,566

Accumulated other comprehensive income (loss) (7,168) (2,996)

Total Walmart shareholders' equity 81,394 76,255

Nonredeemable noncontrolling interest 4,543 5,084

Total equity 85,937 81,339

Total liabilities, redeemable noncontrolling interest, and equity

$ 203,706 $ 204,751

Note 11. Commitments The Company has long-term leases for stores and equipment. Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short-term rental arrangements were $2.8 billion in both fiscal 2015 and 2014 and $2.6 billion in fiscal 2013. Aggregate minimum annual rentals at January 31, 2015, under non-cancelable leases are as follows:

(Amounts in millions)

Fiscal Year Operating Leases Capital Leases

2016 $ 1,759 $ 504

2017 1,615 476

2018 1,482 444

2019 1,354 408

2020 1,236 370

Thereafter 10,464 3,252

Total minimum rentals $ 17,910 $ 5,454

Less estimated executory costs 49

Net minimum lease payments 5,405

Less imputed interest 2,512

Present value of minimum lease payments $ 2,893

Certain of the Company's leases provide for the payment of contingent rentals based on a percentage of sales. Such contingent rentals were not material for fiscal 2015, 2014 and 2013. Substantially all of the Company's store leases have renewal options, some of which may trigger an escalation in rentals. The Company has future lease commitments for land and buildings for approximately 282 future locations. These lease commitments have lease terms ranging from 1 to 30 years and provide for certain minimum rentals. If executed, payments under operating leases would increase by $58 million for fiscal 2016, based on current cost estimates. In connection with certain long-term debt issuances, the Company could be liable for early termination payments if certain unlikely events were to occur. At January 31, 2015, the aggregate termination payment would have been $64 million. The arrangement pursuant to which this payment could be made will expire in fiscal 2019.