>> Accounting Basics
Question - On January 1, 2012, Royal Ahold disclosed the following information about its operating lease commitments:
(E millions) 2010 2011
Within one year $655 $ 677
Between one and five years $2,194 $2,245
After five years $3,130 $3,016
Total $5,979 $5,938
Ahold's operating lease expense in 2011 amounted to $635 million. Assume that Ahold records its finance lease liabilities at an interest rate of 8.4 percent. Use this rate to capitalize Ahold's operating leases at January 1, 2011 and 2012.
a. Record the adjustment to Ahold's balance sheet at the end of 2010 (i.e., January 1, 2011) to reflect the capitalization of operating leases.
b. How would this reporting change affect Ahold's income statement in 2011?