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.
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