COMPANY XYZ CURRENTLY SHOWS MINIMUM EXPECTED OPERATING LEASES OVER...

4. Company XYZ currently shows minimum expected operating leases over the next three years

of $5 million, $4 million and $3 million respectively. The firm’s current financing rate is 5%

and the rate implicit in the lease contract is 5.5%. Which of the following adjustments are

necessary to modify the balance sheet to include this off-balance sheet financing?

A. Increase long term assets and long term liabilities by $10.98 million.

B. Increase long term assets and long term liabilities by $10.88 million.

C. Increase long term assets by $10.98 million and decrease long term liabilities by

$10.98 million.