Question: Assessing the Impact of the Proposed Lease Standards For this assignment, you are the CFO for a large county government that is a party
Question:
Assessing the Impact of the Proposed Lease Standards
For this assignment, you are the CFO for a large county government that is a party to many lease agreements as a lessee, totaling more than $100 million dollars in annual lease payments. (We will assume for simplicity's sake that the county is not a lessor.) All of these lease agreements have more than a year left but have been structured in such a manner that they do not meet any of the criteria that would require them to be reported as capital leases under the existing standards. Therefore, no capital lease obligations payable are recognized as long-term liabilities.
You have just read the GASB Statement 87, Leases, and you realize the new standards could have a very significant impact on the county's financial statements and, therefore, on the county's reported financial health. This is something you need to bring to the attention of the County Executive, the county's chief elected official (but she's not an accountant!).
First, based on your reading of the new lease requirements, you will analyze how implementing the standards would affect the amounts reported in the county's financial statements.
Part 1
The following information is from the county's financial statements for the fiscal year ending December 31, 2020, for the primary government (in thousands of dollars):
Total assets $5,519,445
Capital assets, net 3,579,073
Total deferred outflows 9,622
Total liabilities 2,078,490
Long-term liabilities 1,536,126
Outstanding bonds and notes 1,256,754
Total deferred inflows of resources 17,334
Net position:
Net investment in capital assets: 2,671,433
Restricted 541,865
Unrestricted 219,945
Total net position 3,433,243
Total expenses 3,516,728
Interest expenses - leases 38,574
Total revenues 3,598,824
Lease expenditures 115,892
Other relevant information includes (in thousands of dollars):
Present value of all future lease payments in effect as of 12-31-20- $317,645
Taxable assessed value of property- 44,514,992
State law limits the amount of outstanding debt (including capital leases) that a county may have to 3% of taxable assessed value of property.
Graded Assignment: Determine what amounts in the county's financial statements would change if the proposed standards had been in effect as of 12-31-20, and what the new amounts would be. Be sure to show your relevant work.
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