Spa Universe’s annual report contained the following footnote disclosure concerning amounts to be paid with respect...

Spa Universe’s annual report contained the following footnote disclosure concerning amounts to be paid with respect to its operating leases at the end of 2013:

2014	$ 40,100
2015	42,300
2016	38,600
2017	38,400
2018	32,500
After 2018	12,600
Total minimum operating lease payments	$204,500

There are no lease payment obligations scheduled after 2019.

If Spa Universe’s operating leases were capitalized, how much additional debt would Spa Universe have reported at the end of 2013 assuming a 6% interest rate?

	a.	$195,234
	b.	$176,154
	c.	$204,500
	d.	$166,975

Expert Solution

Period	Year	Amount	Disc Rate	Present Value
1	2014	$ 40,100	0.9434	$ 37,830
2	2015	$ 42,300	0.8900	$ 37,647
3	2016	$ 38,600	0.8396	$ 32,409
4	2017	$ 38,400	0.7921	$ 30,416
5	2018	$ 32,500	0.7473	$ 24,286
6	2019	$ 12,600	0.7050	$ 8,883
		$ 204,500		$ 171,471

I think, the options given in the question are incorrect. The additional debt Spa universe would have reported is $171,471.

ekkarill92 answered 2 years ago

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