Calculation of Present Value of Operating Lease Payments and Lease Liability of Business

Question

1. Kling Technology disclosed the following minimum rental commitments under non-cancelable operating leases in its 2012 annual report:

Minimum operating

lease payments

Amount

(in millions)

2013

$ 86

2014

56

2015

44

2016

36

2017

32

2018

30

Total

$284



What is the present value of these operating lease payments, assuming a 6% discount rate?

2. Taylor’s Corp. disclosed the following lease information in its 2011 annual report (in millions).  What lease liability does Taylor’s report on its balance sheet?

 

Capital Leases

Operating Leases

2012

$1,000

$10,746

2013

1,000

11,022

2014

1,000

9,473

2015

1,000

8,841

2016

1,000

8,579

Thereafter

19,500

121,524

Total

24,500

$170,185

Amount representing interest

(11,578)

 

Net present value of leases

$ 12,922

 



Summary

These short answer questions belong to Finance. The 1st question is about calculating the present value of operating lease payments at 6% discount rate and the 2nd question is about calculating the lease liability of a business.

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