Examine Note 11 to MWW’s financial statements on commitments and contingent liabilities (page A-56).

. Which users of financial statements would be interested in the information in Note 11? Explain. Answer by making reference to specific information disclosed in the notes.

. How much is MWW committed to pay in operating lease payments in 2004 and 2005? Could this amount change in future years? How?

Suppose the operating lease payments reported in the note were to be reported as capital leases.

i. What would be the journal entry that you would record on January 28, 2001 to record these leases as capital leases, assuming the leases went into effect on that date? Assume a discount rate of 11% and assume the payments to be made “thereafter” are evenly distributed over 2007 through 2010.

ii. What effect would classifying these leases as capital leases have on MWW’s debt-to-equity ratio? Explain and show your calculations.

iii. Does it matter how MWW accounts for its leases? Explain.

. The following questions pertain to the buy-back agreement that Mark’s and Work World have with Canadian chartered banks:

i. Describe the buy-back agreement that Mark’s and Work World have regarding inventory owned by franchise stores.

ii. As of January 27, 2001, what is the maximum amount for which MWW is responsible?

iii. This amount is disclosed only in the notes to the financial statements. Do you think that it should be accrued in the financial statements? Explain.

Do you think that it would have been a problem if the information had not been disclosed at all? Explain.

iv. What would be the effect on the financial statements of accruing the maximum amount for which MWW is responsible?