Essay
Festival Corp. disclosed the following footnote in its 2016 annual report related to its leasing activities.
The Company leases various buildings, computer and other equipment, and storage space under operating leases which expire on various dates through January 2037. Rent expense on these leases as well as other month to month rentals was $27,210, $19,081, and $15,012, for 2016, the 2015, and 2014, respectively.
A. What effect, if any, do operating leases have on Festival's 2016 balance sheet and income statement?
B. Would operating leases be considered an on or off-balance-sheet form of financing?
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