The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it mere

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.

In Millions                      In Millions

Current Assets  80         Current Liabilities            40

Fixed Assets     80          Long Term Liabilities      30

Total Assets      160        Total liabilities                 70

                                         Stockholders' equity       90

                

                                          Total liabilities and stockholders'

                                              equity                                           160

The footnotes stated that the company had 16 million in annual capital lease obligations for the next 15 years.

a) Discount these annual lease obligations back to the presnt at a 12 percent discount rat.(Enter your answers in millions rounded to nerarest whole number. Round PV Factor to 3 decimal places.)

b) Construst a revised balance sheet that includes lease obligations.(Enter your answers in millions rounded to nerarest whole number. Round PV Factor to 3 decimal places.)

c) Compute total debt to total assets on the orginial and revised balance sheets. (Round your answer to 1 decimal place.)

d) Compute total debt to equity on the orginial and revised balance sheets. (Round your answer to 1 decimal place.)

Explanation / Answer

a. PV @12% ,15 years =6.811

present value of lease payments = 16,000,000 * 6.811 =108,976,000

b.

b. The revised balance sheet is as below.

c. Total debt to total assets on original balance sheet = 70/160 = 4375%

Total debt to total assets on revised balance sheet = 384/474 = 66.54%

d. Total debt to equity on original balance sheet = 70/90 = 77.78%

Total debt to equity on original balance sheet = 178.976/90 = 198.86%

Current Assets 80 Current Liabilities 40 Fixed Assets 80 Long-term liabilities 30 Leased Property under Capital Lease 108.976 Obligations under capital lease 108.976 Total liabilities 178.976 Stockholders equity 90 Total Assets 268.976 Total liabilities and stockholders equity 268.976

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