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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