Question

Wal-Mart Stores, Inc.

Question: Presented in Illustration 21-31 are the financial statement disclosures from the January 31, 2015, annual report of Wal-Mart Stores, Inc.

Wal-Mart Stores, Inc. (dollar amounts in millions) Jan. 31, 2015 Jan. 31, 2014 Current Liabilities Obligations under capital leases due within one year \( 287\) 309 Noncurrent Liabilities Long-term obligations under capital leases\(2,606 \)2,788

Note 12: Commitments The Company has long-term leases for stores and equipment. Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short-term rental arrangements were \(2.8 billion in both fiscal 2015 and 2014. Aggregate minimum annual rentals at January 31, 2015, under non-cancelable leases are as follows (dollar amounts in millions): Operating LeasesCapital Leases 2016\)1,759\( 504 20171,615 476 20181,482 444 20191,354 408 20201,236 370 Thereafter10,464 3,252 Total minimum rentals 17,910\)5,454 Less estimated executory costs 49 Net minimum lease payments \(5,405 Less imputed interest2,512 Present value of minimum lease payments \)2,893 Certain of the Company’s leases provide for the payment of contingent rentals based on a percentage of sales. Such contingent rentals were immaterial for fiscal 2015 and 2014. Substantially all of the Company’s store leases have renewal options, some of which may trigger an escalation in rentals. The Company has future lease commitments for land and buildings for approximately 282 future locations. These lease commitments have lease terms ranging from 1 to 30 years and provide for certain minimum rentals. If executed, payments under operating leases would increase by $58 million for fiscal 2016, based on current cost estimates. Instructions Answer the following questions related to these disclosures. What is the total obligation under capital leases at January 31, 2015, for Wal-Mart?

Short answer

Lease capital = $2,893

Step-by-step solution

Meaning of Capital Lease

The transfer of ownership rights from one party to another at the completion of the lease period is term as a capital lease.A lessee might benefit from capital leasing by purchasing an asset at a lower cost than the market value.

Step 2:Explaining the obligation under capital leases on January 31, 2015, for Wal-Mart

Walmart Company's total capital lease commitments as of 1/31/2015 are $2,893 (The present value of the future lease payments).

Working Notes:
Calculation of lease capital$$\begin{gathered} \text{Lease}\text{capital}=\text{Current}\text{obligation}\text{under}\text{capital}\text{laese}+\text{Noncurrent}\text{obligation}\text{under}\text{capital}\text{laese} \\ =\$287+\$2,606 \\ =\$2,893 \end{gathered}$$