Question about CFA L2 FRA: Long-lived Asset, Schweser note 2014 P.56

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For the Schweser Notes 2014 of FRA, example on P.56, part B, the question asked the effects on the debt-to-equity ratio if one treated the operating leases as finance leases. For the answer, adjusted debt-to-equity ratio= (reported debt+ PV of operating lease)/ reported equity=(2950+509)/800. I wonder if the equity shd hv changed or not becoz once it is a finance lease, the N.I. will be lower in early years and thus affect the stockholder's equity (Retained Earnings). Am I on the right track?

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关键词：Schweser question Schwese CFA L2 Quest about 2014

Anyone can help with this?

I thiink this example just want to show you how to treat an operating lease as finance lease, how to calculate the pv of the operating lease. Back to your question, noted that in the stem of this example part B, $800 equity is reported at the inception of the lease. Change an operating lease to a finance lease will affect the NI because the depreciation and interest expense in finance lease will expand over the lease payment in operating lease. But I think this change should be reported in the next year of the inception, not the incept year. So $800 equity may not be changed in the calculation.

thz for ur replying:D understood!