Question

Many companies have a form of debt called capital leases. A capital lease is created when a company agrees to rent an asset, such as equipment or a building, for such a long time that GAAP treats this lease as if the asset was purchased using borrowed funds. A capital lease creates a liability for the company that acquired the leased asset because it has promised to make payments to another company for several years in the future. If a company has any capital leases, it must disclose them in the notes to the financial statements and will sometimes disclose them in a separate account in the liabilities section of the balance sheet.

Using the most current Forms 10-K for Union Pacific Corporation, complete the requirement below. To obtain the 10-K you can either use the EDGAR system or they can be found on the company's website.


Required

What was Union Pacific's debt-to-asset ratio?

Solution

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Answered 9 months ago
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Requirement A

Using the figures retrieved from Form 10-K for Union Pacific Corporation during 2016, the debt to equity ratio is computed as:

Debt to equity ratio=Short-term debt + Long-term DebtTotal Asset\begin{aligned} \text{Debt to equity ratio} &= \dfrac{\text{Short-term debt + Long-term Debt}} {\text{Total Asset}}\\[10pt] \end{aligned}

First, we have to compute for the sum of Union Pacific's short-term and long-term debts.

Position Amount (in millions)
Current Liabilities $3,640\$3,640
Debt due after 1 year $14,249\$14,249
Other long-term debt $1,901\underline{\$1,901}
Total $19,790\$19,790

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