As a loan officer for First Bank you re evaluating Newton

As a loan officer for First Bank you re evaluating Newton

As a loan officer for First Bank, you're evaluating Newton Co.'s financial statements. Your
evaluation reveals that Newton has no capital leases recorded on its financial statements. To
effectively evaluate Newton's financial position, you've decided to constructively capitalize
Newton's operating leases in accordance with ASC 842. The following information is available
from Newton's financial statements for the year ended December 31, 2017:
Minimum Operating
Year ______________________________Lease Payments
2018..........................................................$ 500
2019............................................................450
2020............................................................410
2021............................................................410
2022.............................................................320
After 2022...................................................2,880
Total........................................................$ 4,970
Required:
1. Assuming that Newton's long-term debt rate is 8%, estimate its constructively capitalized
operating lease liability under ASU 2016-02 (ASC 842).
2. What would be the right-of-use asset under ASU 2016-02 (ASC 842)?
3. How will constructive capitalization affect Newton Co.'s debt-to-equity ratio?

As a loan officer for First Bank you re evaluating Newton

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