Below is the Operating Lease note from the financial statements of Rocky Mountai
ID: 2499986 • Letter: B
Question
Below is the Operating Lease note from the financial statements of Rocky Mountain Chocolate Factory, Inc. for the year ended February 28, 2015:
Operating Leases
The Company conducts its retail operations in facilities leased under non-cancelable operating leases.
The following is a schedule by year of future minimum rental payments required under such leases for the years ending February 28 or 29:
2016
$
995,000
2017
753,000
2018
677,000
2019
617,000
2020
293,000
Thereafter
56,000
Total
$
3,391,000
Assume that RMC’s cost of capital is 2.5%. Further, assume that RMC depreciates its facilities over 10 years using the straight-line method of depreciation with no salvage value. If RMC capitalized its operating leases (that is, treated them as capital leases), by how much would net income differ as a result in 2016 and 2017? Please show your work step by step because I want to understand how to do this problem. Thank you!
2016
$
995,000
2017
753,000
2018
677,000
2019
617,000
2020
293,000
Thereafter
56,000
Total
$
3,391,000
Explanation / Answer
Answer:
Difference in net income=$971120-716856=254264
P.V.F (2.5%) PV 2016 995,000 0.976 971120 2017 753,000 0.952 716856 2018 677,000 0.929 628933 2019 617,000 0.906 559002 2020 293,000 0.884 259012 Thereafter 56,000 0.862 48272 Total 3,391,000 3,183,195Related Questions
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