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Unformatted text preview: ©Cambridge Business Publishers, 2011 Solutions Manual, Chapter 10 10-1 Chapter 10 Reporting and Analyzing Leases, Pensions, and Income Taxes Learning Objectives – coverage by question Mini- exercises Exercises Problems Cases LO1 – Define off-balance-sheet financing and explain its effects on financial analysis. 20, 21 47 LO2 – Account for leases using the operating lease method or the capital lease method. 12, 13, 14 23, 24, 25, 27 33, 36 47 LO3 – Convert off-balance-sheet operating leases to the capital lease method. 15 25, 26, 27 33, 34, 35, 36, 45 47 LO4 – Explain and interpret the reporting for pension plans. 16, 17, 18, 19 29, 30 37, 38 46 LO5 – Analyze and interpret pension footnote disclosures. 16, 17, 18, 19 28, 29, 30 37 46 LO6 – Describe and interpret accounting for income taxes. 22 31, 32 39, 40, 41, 42, 43, 44 48 ©Cambridge Business Publishers, 2011 Financial Accounting, 3 rd Edition 10-2 QUESTIONS Q10-1. Under an operating lease, the lessor retains the usual risks and rewards of owning the property. In accounting for an operating lease, the lessee doesn’t record either the leased asset or the lease liability on the balance sheet, and normally charges each lease payment to rent expense. In contrast, a capital lease transfers to the lessee substantially all of the risks and rewards relating to the ownership of the property. Accordingly, the lessee accounts for a capital lease by recording the leased property as an asset and establishing a liability for the lease obligation. The leased asset is subsequently depreciated, and interest expense is accrued on the lease liability. Q10-2. The leasing footnote is reasonably complete to allow for capitalization of operating leases for analysis purposes. Despite the quality of the leasing disclosures, on-balance-sheet treatment is, arguably, a more direct form of communication from the company and, as a result, is more easily interpreted by users of its financial statements. Q10-3. Yes, over the term of the lease the rent expense on an operating lease will be equal to the sum of the interest and depreciation on a capital lease. Only the timing of the expense recognition changes. Expense is ultimately related to the cash flows required to discharge the obligation. Those cash flows are the same whether or not the lease is capitalized. Q10-4. Under defined contribution plans, companies make contributions to the plans which, together with earnings on the amounts invested, provide the sole source of funding for payments to retirees. Under defined benefit plans, the obligations are defined with payment to be made in the future from general corporate funds. These plans may or may not be fully funded....
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This note was uploaded on 08/16/2011 for the course ECON 300 taught by Professor Laren during the Spring '11 term at Missouri State University-Springfield.
- Spring '11