This quiz is based on the most recent annual report of PepsiCo, Inc. You can obtain Pepsi’?s financial statements from the firm’?s corporate web site at http://www.pepsico.com/Investors.html. Unless otherwise indicated, all questions relate to the current period’?s financial statements.
What type of asset(s) does Pepsi lease with its operating leases?
Non-cancelable operating leases primarily represent building lease.
How much does PepsiCo. owe related to its operating leases? Operating leases are $1,825
Where is the amount owed for operating leases shown on the balance sheet? Cannot find.
One area of significant difference between U.S. GAAP and IFRS is accounting for leases. Deliberations between the standards setters are ongoing but both have generally agreed that all leased assets should appear on balance sheets.
Assume that the present value of the operating leases is 60% of the cash payment amount. What journal entry would Pepsi make to capitalize its operating leases? $1,825 * 60% = $1,095
Lease asset 1,095
Lease liability 1,095
Recompute these two ratios (that you calculated in the first financial statement analysis assignment) for the current year including the capitalization of operating leases.
Debt / Return on Equity| ($51,983+$1,095) / $20,899=2.54|
Return on assets| $6,462 / ($72,882+$1,095)=8.74%|
What impact would changing the accounting for operating leases have on your assessment of Pepsi? Debt / Equity without capitalization = $51,983 / $20,899 = 2.49 So the Debt / Equity ratio increase from 2.49 to 2.54
Return on assets without capitalization = $6,462 / $72,882 = 8.87%
The Return on assets ratio decrease from 8.87% to 8.74%
According to Debt / Equity ratio increase and return on assets ratio decreases, it will not be good for Pepsi to operate leases....
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