Question about CFA L2 FRA: Long-lived Asset, Schweser note 2014 P.56 adjusted, reported, question, finance, example

lawkm223

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 in the right track?

mophic

you 're right holding other things unchanged, but the example only asked u the balance sheet impact at the inception of the financial lease, which means an instant adjustment to the changing of accounting method

lawkm223

Thz for answering however i found quite a no. of mistakes in Schweser notes@@