Current Generally Accepted Accounting Principles Do Not Require Operating Leases

question 65

Essay

Current generally accepted accounting principles do not require operating leases to be shown on the balance sheet. Consider the case of Company
A. If the operating leases of A Company were added to the company's liabilities at December 31, 2011, the company's current ratio would decline from 0.69 to 0.57 and total debt would increase from $239 million to $1,105 million. Significant changes would also occur in the return on assets since assets would be increased and the related increase in depreciation and interest expense would exceed the rent expense currently included in the company's income statement.
Required:

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