Analyzing and Interpreting Footnote on Operating and Capital Leases... Analyzing and Interpreting Footnote on Operating and Capital Leases
Verizon Communications Inc. provides the following footnote relating to adoption of the new lease

accounting standards (Topic 842) in its 10-Q report for the quarter ended March 31, 2019.

The cumulative after-tax effect of the changes made to our condensed consolidated balance

sheet for the adoption of Topic 842 were as follows:

($ millions)

At December 31,

2018

Adjustments

due to

Topic 842

At January 1,

2019

Prepaid expenses and other. . . . . . . . . . . . . $ 5,453 $ (329) $5,124

Operating lease right-of-use assets . . . . . . . — 23,241 23,241

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 11,717 (2,048) 9,669

Accounts payable and accrued liabilities . . . 22,501 (3) 22,498

Other current liabilities . . . . . . . . . . . . . . . . . 8,239 (2) 8,237

Current operating lease liabilities . . . . . . . . . — 2,931 2,931

Deferred income taxes . . . . . . . . . . . . . . . . . 33,795 139 33,934

Noncurrent operating lease liabilities . . . . . . — 19,203 19,203

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 13,922 (1,815) 12,107

Retained earnings . . . . . . . . . . . . . . . . . . . . 43,542 410 43,952

Noncontrolling interests . . . . . . . . . . . . . . . . 1,565 1 1,566

Rent expense for operating leases is recognized on a straight-line basis over the term of the

lease and is included in either Cost of services or Selling, general and administrative expense

in our condensed consolidated statements of income, based on the use of the facility on which

rent is being paid.

a. What is the amount of the right-of-use asset the company added to its balance sheet upon adoption

of the new standard?

b. How will Verizon treat the right-of-use asset on the balance sheet during the life of the lease?

c. Assume the right-of-use assets had a weighted average lease term of 12 years. Approximate the ef-

fect the operating leases had on Verizon's income statement in Q1 2019.

d. What is the amount of the total operating lease liabilities the company added to its balance sheet

upon adoption of the new standard? Explain what this amount represents.

e. The company decided to adopt the standard with a modified retrospective method and did not adjust

numbers on the comparative balance sheet. What analysis challenges does this create?