Abstract

When standards for financial reporting are amended, potential for change in the appearance of financial position for companies reporting under those standards arises. Currently standards set forth by the Financial Accounting Standards Board (FASB) allow for two methods of reporting lease obligations on the financial statements. The first of these methods is the operating method, which allows lease payments to be expensed within the period they are incurred and only a decrease in cash or an increase in an account payable is recognized on the balance sheet. The second method is the capital method, which requires the present value of the future lease payments to be recognized on the balance sheet as an asset and a corresponding liability. Both are reduced annually through depreciation and lease payments respectively. The FASB has recently proposed discontinuing the operating method of reporting a lease obligation and allowing only for the capital method to be used. The objective of this study is to examine some of the changes in appearance of financial position that might be brought on by this potential change in reporting standards. The airline industry has been selected to illustrate the effects of capitalizing future operating lease payments on the balance sheet. These future payments under operating leases for companies within the industry are capitalized using two different methods of depreciation. The companies are then ranked in order of proximity to an industry average for eight well known financial ratios. The rankings for each treatment on a given ratio are compared and differences between the expensed ranking and each capitalized ranking are measured and discussed.

Notes

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Thesis Completion

2013

Semester

Spring

Advisor

Roush, Pamela

Degree

Bachelor of Science (B.S.)

College

College of Business Administration

Degree Program

Accounting

Subjects

Business Administration -- Dissertations, Academic; Dissertations, Academic -- Business Administration

Format

PDF

Identifier

CFH0004366

Language

English

Access Status

Open Access

Length of Campus-only Access

None

Document Type

Honors in the Major Thesis

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Included in

Accounting Commons

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