Chapter 15, Problem 15.4BYP

Analysis Case 15–4

Lease concepts; Walmart

• LO15–1 through LO15–4

Real World Financials

Walmart Stores, Inc. is the world’s largest retailer. A large portion of the premises that the company occupies are leased. Its financial statements and disclosure notes revealed the following information:

Balance Sheet

($ in millions)

	2016	2015
Assets
Property:
Property under capital lease	$11,096	$5,239
Less: Accumulated amortization	(4,751)	(2,864)
Liabilities
Current liabilities:
Obligations under finance leases due within one year	551	287
Long-term debt:
Long-term obligations under finance leases	5,816	2,606

Required:

1. Discuss some possible reasons why Walmart leases rather than purchases most of its premises.

2. The net asset “property under finance lease” has a 2016 balance of $6,345 million ($11,096 − 4,751). Liabilities for finance leases total $6,367 ($551 + 5,816). Why do the asset and liability amounts differ?

3. Prepare a 2016 summary entry to record Walmart’s lease payments, which were $600 million.

4. What is the approximate average interest rate on Walmart’s finance leases? (Hint: See Req. 3)