The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13 , it mer
ID: 2701673 • Letter: T
Question
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows: Use Appendix D.
Discount these annual lease obligations back to the present at a 8 percent discount rate. (Enter your answers in millions rounded to nearest whole number. Round "PV Factor" to 3 decimal places. Omit the "$" sign in your response.)
Construct a revised balance sheet that includes lease obligations. (Enter your answers in millions rounded to nearest whole number. Round "PV Factor" to 3 decimal places. Omit the "$" sign in your response.)
Compute total debt to total assets on the original and revised balance sheets. (Round your answer to 1 decimal place. Omit the "%" sign in your response.)
Compute total debt to equity on the original and revised balance sheets. (Round your answer to 1 decimal place. Omit the "%" sign in your response.)
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows: Use Appendix D.
Explanation / Answer
a. PV can be calculated in Excel as =PV(8%,20,-33,0,0). This is equal to $324 million.
b. The revised balance sheet is as below.
c. Total debt to total assets on original balance sheet = 60/150 = 40.0%
Total debt to total assets on revised balance sheet = 384/474 = 81%
d. Total debt to equity on original balance sheet = 60/90 = 66.7%
Total debt to equity on original balance sheet = 384/90 = 426.7%
Current Assets 75 Current Liabilities 15 Fixed Assets 75 Long-term liabilities 45 Leased Property under Capital Lease 324 Obligations under capital lease 324 Total liabilities 384 Stockholders equity 90 Total Assets 474 Total liabilities and stockholders equity 474Related Questions
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