Financial Reporting Problem
The Procter & Gamble Company (P&G)
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.
Instructions
Refer to P&G’s financial statements, accompanying notes, and management’s discussion and analysis to answer the following questions.
(a) What types of leases are used by P&G?
(b) What amount of capital leases was reported by P&G in total and for less than one year?
(c) What minimum annual rental commitments under all noncancelable leases at June 30, 2014, did P&G disclose?
Comparative Analysis Case
Delta Air Lines and Southwest Airlines
The financial statements and notes to the financial statements for Delta Air Lines and Southwest Airlines can be found online.
Instructions
Use information found in the companies’ financial reports to answer the following questions.
(a) What types of leases are used by Southwest and on what assets are these leases primarily used?
(b) How long-term are some of Southwest’s leases? What are some of the characteristics or provisions of Southwest’s (as lessee) leases?
(c) What did Southwest report in 2014 as its future minimum annual rental commitments under noncancelable leases?
(d) At year-end 2014, what was the present value of the minimum rental payments under Southwest’s capital leases? How much imputed interest was deducted from the future minimum annual rental commitments to arrive at the present value?
(e) What were the amounts and details reported by Southwest for rental expense in 2014, 2013, and 2012?
(f) How does Delta’s use of leases compare with Southwest’s?
Financial Statement Analysis Case
Wal-Mart Stores, Inc.
Presented in Illustration 21-31 are the financial statement disclosures from the January 31, 2015, annual report of Wal-Mart Stores, Inc.
Instructions
Answer the following questions related to these disclosures.
(a) What is the total obligation under capital leases at January 31, 2015, for Wal-Mart?
(b) What is the total rental expense reported for leasing activity for the year ended January 31, 2015, for Wal-Mart?
(c) Estimate the off-balance-sheet liability due to Wal-Mart’s operating leases at January 31, 2015.
Accounting, Analysis, and Principles
Salaur Company is evaluating a lease arrangement being offered by TSP Company for use of a computer system. The lease is noncancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2017, with the first rental payment due on January 1, 2017. Additional information related to the lease is as follows....
Accounting
Analyze the lease capitalization criteria for this lease for Salaur Company. Prepare the journal entry for Salaur on January 1, 2017.
Analysis
Briefly discuss the impact of the accounting for this lease for two common ratios: return on assets and debt to total assets.
Principles
What element of faithful representation (completeness, neutrality, free from error) is being addressed when a company like Salaur evaluates lease capitalization criteria?
