Business, 13.12.2021 20:50 TerronRice
Analyzing and Interpreting Footnote on Operating and Capital Leases...
Analyzing and Interpreting Footnote on Operating and Capital Leases
Verizon Communications Inc. provides the following footnote relating to adoption of the new lease
accounting standards (Topic 842) in its 10-Q report for the quarter ended March 31, 2019.
The cumulative after-tax effect of the changes made to our condensed consolidated balance
sheet for the adoption of Topic 842 were as follows:
($ millions)
At December 31,
2018
Adjustments
due to
Topic 842
At January 1,
2019
Prepaid expenses and other. . . . . . . . . . . . . $ 5,453 $ (329) $5,124
Operating lease right-of-use assets . . . . . . . — 23,241 23,241
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 11,717 (2,048) 9,669
Accounts payable and accrued liabilities . . . 22,501 (3) 22,498
Other current liabilities . . . . . . . . . . . . . . . . . 8,239 (2) 8,237
Current operating lease liabilities . . . . . . . . . — 2,931 2,931
Deferred income taxes . . . . . . . . . . . . . . . . . 33,795 139 33,934
Noncurrent operating lease liabilities . . . . . . — 19,203 19,203
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 13,922 (1,815) 12,107
Retained earnings . . . . . . . . . . . . . . . . . . . . 43,542 410 43,952
Noncontrolling interests . . . . . . . . . . . . . . . . 1,565 1 1,566
Rent expense for operating leases is recognized on a straight-line basis over the term of the
lease and is included in either Cost of services or Selling, general and administrative expense
in our condensed consolidated statements of income, based on the use of the facility on which
rent is being paid.
a. What is the amount of the right-of-use asset the company added to its balance sheet upon adoption
of the new standard?
b. How will Verizon treat the right-of-use asset on the balance sheet during the life of the lease?
c. Assume the right-of-use assets had a weighted average lease term of 12 years. Approximate the ef-
fect the operating leases had on Verizon's income statement in Q1 2019.
d. What is the amount of the total operating lease liabilities the company added to its balance sheet
upon adoption of the new standard? Explain what this amount represents.
e. The company decided to adopt the standard with a modified retrospective method and did not adjust
numbers on the comparative balance sheet. What analysis challenges does this create?
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Analyzing and Interpreting Footnote on Operating and Capital Leases...
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