You have been hired as a financial analyst by an asset management firm, Bicentennial, LLC. A fund manager, John Edward, is constructing a new equity investment fund focusing on the burgeoning industry of electric vehicles. John assigns you a financial statement analysis project comparing recent operational performances and current financial position of the three companies: Ford, General Motors, and Tesla Inc. Specifically, John is expecting you to read those companies annual reports in the Form 10-K and assist him to understand the financial implication of the following four areas: (1) the use of finance and operating leases, (2) financial reporting of pension liabilities, (3) the efficiency of tax planning and the reporting of tax positions; and (4) cash management policy and soundness of operating, investing, and financing cash flows.

Question 1. In the consolidated financial statements of Ford Motor Company for the fiscal year 2020, two lease accounts are reported in the balance sheet. On page 104 (Balance Sheet) and page 135 (Footnote No.12), Ford is reporting Net investment in operating leases of $27,951 million for FY2020. However, in Footnote 16. Other Liabilities and Deferred Revenue section and Footnote 18. Lease Commitments, Ford is reporting operating and finance leases as its liabilities.

Why Ford is reporting leases as both assets and liabilities? I heard about the new lease accounting rule requiring the recognition of the right-of-use as an intangible asset. Is it because of the new accounting rule? Or, is it a reflection of Fords business structure including two business segments: auto-manufacturing unit and auto-financing unit? Distinct from Fords disclosure style, Tesla is separately recognizing Operating Lease Vehicle and Operating Lease Right-of-Use asset in the asset section of its balance sheet (10-K, page 54).

Please explain what each account represents?

December 31, 2019 December 31, 2020 $ 17,504 $ 17,147 53,651 9,237 10,786 2,383 3,339 114,047 53,703 29,230 36,469 2,519 11,863 10,706 258,537 $ 25,243 24,718 42,401 9,993 10,808 47 3,534 116,744 55,277 27,951 37,083 4,901 12,423 12,882 267,261 $ $ ASSETS Cash and cash equivalents (Note 9) Marketable securities (Note 9) Ford Credit finance receivables, net of allowance for credit losses of $162 and $394 (Note 10) Trade and other receivables, less allowances of $63 and $84 Inventories (Note 11) Assets held for sale (Note 2, Note 10, and Note 22) Other assets Total current assets Ford Credit finance receivables, net of allowance for credit losses of $351 and $911 (Note 10) Net investment in operating leases (Note 12) Net property (Note 13) Equity in net assets of affiliated companies (Note 14) Deferred income taxes (Note 7) Other assets Total assets LIABILITIES Payables Other liabilities and deferred revenue (Note 16 and Note 25) Automotive debt payable within one year (Note 19) Ford Credit debt payable within one year (Note 19) Other debt payable within one year (Note 19) Liabilities held for sale (Note 22) Total current liabilities Other liabilities and deferred revenue (Note 16 and Note 25) Automotive long-term debt (Note 19) Ford Credit long-term debt (Note 19) Other long-term debt (Note 19) Deferred income taxes (Note 7) Total liabilities EQUITY Common Stock, par value $0.01 per share (4,025 million shares issued of 6 billion authorized) Class B Stock, par value $0.01 per share (71 million shares issued of 530 million authorized) Capital in excess of par value of stock Retained earnings Accumulated other comprehensive income (loss) (Note 23) Treasury stock Total equity attributable to Ford Motor Company Equity attributable to noncontrolling interests Total equity Total liabilities and equity 20,673 $ 22,987 1,445 52,371 130 22,204 23,645 1,194 49,969 180 526 98,132 25,324 13,233 87,658 470 490 225,307 97,192 28,379 22,342 87,708 291 538 236,450 40 1 22,165 20,320 (7,728) (1,613) 33,185 40 1 22,290 18,243 (8,294) (1,590) 30,690 121 30,811 267,261 45 33,230 258,537 Total liabilities and equity $ 258,537 $ 267,261 The following table includes assets to be used to settle liabilities of the consolidated variable interest entities ("VIEs). These assets and liabilities are included in the consolidated balance sheets above. See Note 24 for additional information on our VIEs. December 31, December 31, 2019 2020 $ ASSETS Cash and cash equivalents Ford Credit finance receivables, net Net investment in operating leases Other assets LIABILITIES Other liabilities and deferred revenue Debt 3,202 $ 58,478 14,883 12 2,822 51,472 12,794 $ 19 $ 56 46,770 50,865 The accompanying notes are part of the consolidated financial statements. NOTE 12. NET INVESTMENT IN OPERATING LEASES Net investment in operating leases consists primarily of lease contracts for vehicles with individuals, daily rental companies, government entities, and fleet customers. Assets subject to operating leases are depreciated using the straight-line method over the term of the lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned. The net investment in operating leases at December 31 was as follows (in millions): 2019 2020 $ 1,612 $ 1,304 Automotive Segment Vehicles, net of depreciation Ford Credit Segment Vehicles and other equipment, at cost (a) Accumulated depreciation Total Ford Credit Segment Total 33,386 (5,768) 27,618 29,230 $ 32,486 (5,839) 26,647 27,951 $ (a) Includes Ford Credit's operating lease assets of $14.9 billion and $12.8 billion at December 31, 2019 and 2020, respectively, that have been included in securitization transactions. These net investments in operating leases are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay other obligations or the claims of other creditors. Ford Credit Segment Included in Ford Credit interest, operating, and other expense is operating lease depreciation expense, which includes gains and losses on disposal of assets. Operating lease depreciation expense for the years ended December 31 was as follows (in millions): 2018 2020 2019 3,635 $ Operating lease depreciation expense $ 3,972 $ 3,235 The amounts contractually due on operating leases at December 31, 2020 were as follows (in millions): 2021 2022 2024 2023 878 $ Thereafter 98 $ 4 $ Total 7,879 Operating lease payments $ 4,369 $ 2,530 $ NOTE 16. OTHER LIABILITIES AND DEFERRED REVENUE Other liabilities and deferred revenue at December 31 were as follows (in millions): 2019 2020 $ $ Current Dealer and dealers' customer allowances and claims Deferred revenue Employee benefit plans Accrued interest OPEB Pension Operating lease liabilities Other Total current other liabilities and deferred revenue 13,113 2,091 1,857 1,128 332 12,702 2,161 1,752 1,215 339 185 367 193 323 4,960 23,645 3,914 $ 22,987 $ Non-current Pension $ Dealer and dealers' customer allowances and claims Deferred revenue Operating lease liabilities Employee benefit plans Other Total non-current other liabilities and deferred revenue 9,878 $ 5,740 1,921 4,191 1,047 1,104 1,443 25,324 $ 10,738 6,236 3,072 4,559 991 1,074 1,709 28,379 $ NOTES TO THE FINANCIAL STATEMENTS NOTE 18. LEASE COMMITMENTS (Continued) Lease right-of-use assets and liabilities at December 31 were as follows (in millions): 2019 2020 Operating leases Other assets, non-current $ 1,415 $ 1,287 $ Other liabilities and deferred revenue, current Other liabilities and deferred revenue, non-current Total operating lease liabilities 367 $ 1,047 1,414 $ 323 991 1,314 $ $ Finance leases Property and equipment, gross Accumulated depreciation Property and equipment, net 252 $ (43) 209 $ 540 (50) 490 $ $ Automotive debt payable within one year Automotive long-term debt Total finance lease liabilities 92 $ 85 177 $ 46 368 414 $ The amounts contractually due on our lease liabilities as of December 31, 2020 were as follows (in millions): Finance Leases 2021 $ 60 54 42 Operating Leases (a) 366 $ 279 210 156 117 352 1,480 166 1,314 $ 35 30 2022 2023 2024 2025 Thereafter Total Less: Present value discount Total lease liabilities 303 524 110 414 $ (a) Excludes approximately $101 million in future lease payments for various operating leases commencing in a future period. FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 18. LEASE COMMITMENTS (Continued) Supplemental cash flow information related to leases for the years ended December 31 was as follows (in millions): 2019 2020 $ 460 $ 434 6 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease liabilities Operating leases Finance leases (a) 15 105 35 $ 304 527 $ 43 306 The components of lease expense for the years ended December 31 were as follows (in millions): 2019 2020 $ S 467 53 (16) 463 57 (14) Operating lease expense Variable lease expense Sublease income Finance lease expense Amortization of right-of-use assets Interest on lease liabilities Total lease expense 15 27 6 525 $ 15 548 The weighted-average remaining lease term and weighted-average discount rate at December 31 were as follows: 2019 2020 6.3 6.3 3.0 14.8 Weighted average remaining lease term (in years) Operating leases Finance leases (a) Weighted average discount rate Operating leases Finance leases 3.4 % 3.3 % 3.8 % 3.5 % (a) Includes the addition of a 20-year finance lease for about $300 million that commenced in January 2020. December 31, 2019 December 31, 2020 $ 17,504 $ 17,147 53,651 9,237 10,786 2,383 3,339 114,047 53,703 29,230 36,469 2,519 11,863 10,706 258,537 $ 25,243 24,718 42,401 9,993 10,808 47 3,534 116,744 55,277 27,951 37,083 4,901 12,423 12,882 267,261 $ $ ASSETS Cash and cash equivalents (Note 9) Marketable securities (Note 9) Ford Credit finance receivables, net of allowance for credit losses of $162 and $394 (Note 10) Trade and other receivables, less allowances of $63 and $84 Inventories (Note 11) Assets held for sale (Note 2, Note 10, and Note 22) Other assets Total current assets Ford Credit finance receivables, net of allowance for credit losses of $351 and $911 (Note 10) Net investment in operating leases (Note 12) Net property (Note 13) Equity in net assets of affiliated companies (Note 14) Deferred income taxes (Note 7) Other assets Total assets LIABILITIES Payables Other liabilities and deferred revenue (Note 16 and Note 25) Automotive debt payable within one year (Note 19) Ford Credit debt payable within one year (Note 19) Other debt payable within one year (Note 19) Liabilities held for sale (Note 22) Total current liabilities Other liabilities and deferred revenue (Note 16 and Note 25) Automotive long-term debt (Note 19) Ford Credit long-term debt (Note 19) Other long-term debt (Note 19) Deferred income taxes (Note 7) Total liabilities EQUITY Common Stock, par value $0.01 per share (4,025 million shares issued of 6 billion authorized) Class B Stock, par value $0.01 per share (71 million shares issued of 530 million authorized) Capital in excess of par value of stock Retained earnings Accumulated other comprehensive income (loss) (Note 23) Treasury stock Total equity attributable to Ford Motor Company Equity attributable to noncontrolling interests Total equity Total liabilities and equity 20,673 $ 22,987 1,445 52,371 130 22,204 23,645 1,194 49,969 180 526 98,132 25,324 13,233 87,658 470 490 225,307 97,192 28,379 22,342 87,708 291 538 236,450 40 1 22,165 20,320 (7,728) (1,613) 33,185 40 1 22,290 18,243 (8,294) (1,590) 30,690 121 30,811 267,261 45 33,230 258,537 Total liabilities and equity $ 258,537 $ 267,261 The following table includes assets to be used to settle liabilities of the consolidated variable interest entities ("VIEs). These assets and liabilities are included in the consolidated balance sheets above. See Note 24 for additional information on our VIEs. December 31, December 31, 2019 2020 $ ASSETS Cash and cash equivalents Ford Credit finance receivables, net Net investment in operating leases Other assets LIABILITIES Other liabilities and deferred revenue Debt 3,202 $ 58,478 14,883 12 2,822 51,472 12,794 $ 19 $ 56 46,770 50,865 The accompanying notes are part of the consolidated financial statements. NOTE 12. NET INVESTMENT IN OPERATING LEASES Net investment in operating leases consists primarily of lease contracts for vehicles with individuals, daily rental companies, government entities, and fleet customers. Assets subject to operating leases are depreciated using the straight-line method over the term of the lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned. The net investment in operating leases at December 31 was as follows (in millions): 2019 2020 $ 1,612 $ 1,304 Automotive Segment Vehicles, net of depreciation Ford Credit Segment Vehicles and other equipment, at cost (a) Accumulated depreciation Total Ford Credit Segment Total 33,386 (5,768) 27,618 29,230 $ 32,486 (5,839) 26,647 27,951 $ (a) Includes Ford Credit's operating lease assets of $14.9 billion and $12.8 billion at December 31, 2019 and 2020, respectively, that have been included in securitization transactions. These net investments in operating leases are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay other obligations or the claims of other creditors. Ford Credit Segment Included in Ford Credit interest, operating, and other expense is operating lease depreciation expense, which includes gains and losses on disposal of assets. Operating lease depreciation expense for the years ended December 31 was as follows (in millions): 2018 2020 2019 3,635 $ Operating lease depreciation expense $ 3,972 $ 3,235 The amounts contractually due on operating leases at December 31, 2020 were as follows (in millions): 2021 2022 2024 2023 878 $ Thereafter 98 $ 4 $ Total 7,879 Operating lease payments $ 4,369 $ 2,530 $ NOTE 16. OTHER LIABILITIES AND DEFERRED REVENUE Other liabilities and deferred revenue at December 31 were as follows (in millions): 2019 2020 $ $ Current Dealer and dealers' customer allowances and claims Deferred revenue Employee benefit plans Accrued interest OPEB Pension Operating lease liabilities Other Total current other liabilities and deferred revenue 13,113 2,091 1,857 1,128 332 12,702 2,161 1,752 1,215 339 185 367 193 323 4,960 23,645 3,914 $ 22,987 $ Non-current Pension $ Dealer and dealers' customer allowances and claims Deferred revenue Operating lease liabilities Employee benefit plans Other Total non-current other liabilities and deferred revenue 9,878 $ 5,740 1,921 4,191 1,047 1,104 1,443 25,324 $ 10,738 6,236 3,072 4,559 991 1,074 1,709 28,379 $ NOTES TO THE FINANCIAL STATEMENTS NOTE 18. LEASE COMMITMENTS (Continued) Lease right-of-use assets and liabilities at December 31 were as follows (in millions): 2019 2020 Operating leases Other assets, non-current $ 1,415 $ 1,287 $ Other liabilities and deferred revenue, current Other liabilities and deferred revenue, non-current Total operating lease liabilities 367 $ 1,047 1,414 $ 323 991 1,314 $ $ Finance leases Property and equipment, gross Accumulated depreciation Property and equipment, net 252 $ (43) 209 $ 540 (50) 490 $ $ Automotive debt payable within one year Automotive long-term debt Total finance lease liabilities 92 $ 85 177 $ 46 368 414 $ The amounts contractually due on our lease liabilities as of December 31, 2020 were as follows (in millions): Finance Leases 2021 $ 60 54 42 Operating Leases (a) 366 $ 279 210 156 117 352 1,480 166 1,314 $ 35 30 2022 2023 2024 2025 Thereafter Total Less: Present value discount Total lease liabilities 303 524 110 414 $ (a) Excludes approximately $101 million in future lease payments for various operating leases commencing in a future period. FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 18. LEASE COMMITMENTS (Continued) Supplemental cash flow information related to leases for the years ended December 31 was as follows (in millions): 2019 2020 $ 460 $ 434 6 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease liabilities Operating leases Finance leases (a) 15 105 35 $ 304 527 $ 43 306 The components of lease expense for the years ended December 31 were as follows (in millions): 2019 2020 $ S 467 53 (16) 463 57 (14) Operating lease expense Variable lease expense Sublease income Finance lease expense Amortization of right-of-use assets Interest on lease liabilities Total lease expense 15 27 6 525 $ 15 548 The weighted-average remaining lease term and weighted-average discount rate at December 31 were as follows: 2019 2020 6.3 6.3 3.0 14.8 Weighted average remaining lease term (in years) Operating leases Finance leases (a) Weighted average discount rate Operating leases Finance leases 3.4 % 3.3 % 3.8 % 3.5 % (a) Includes the addition of a 20-year finance lease for about $300 million that commenced in January 2020