Wal-Mart Stores, Inc., is the world's largest retailer. A large portion of the premises that the company occupies are leased. Its financial statements and disclosure notes revealed the following information:
Balance Sheet ($ in millions)
2011 2010
Assets
Property:
Property under capital lease $5,509 $5,669
Less: Accumulated amortization (2,780) (2,906)
Liabilities
Current liabilities:
Obligations under capital leases due within one year 336 346
Long-term debt:
Long-term obligations under capital leases 3,150 3,170
Required:
1. Discuss some possible reasons why Walmart leases rather than purchases most of its premises.
2. The net asset "property under capital lease" has a 2011 balance of $2,729 million ($5,509 2 2,780). Liabilities for capital leases total $3,486 ($336 1 3,150). Why do the asset and liability amounts differ?
3. Prepare a 2011 summary entry to record Walmart's lease payments, which were $600 million.
4. What is the approximate average interest rate on Walmart's capital leases? (Hint: See Req. 3)