When changing from reporting operating to capital lease, in the liability side, why do we add the interest expense and subtract the rent?
is not this equation adjusted in the I/S? Should not the liability side include the principal amount without the interest?
Does anyone know the answer for that!
Out of curiosity, why do you end most of your questions with exclamation points, rather than with question marks?
Interest expense and rent are shown on the income statement, but it appears you want to ask a question about the balance sheet. Why is that?
To adjust Interest Coverage Ratio for capital lease, you do this:
Original EBIT + lease expense - depreciation from capital
divided by
Original Interest Exense + interest from capital lease
(I do believe this will be on the test 
On balance sheet, you add to debt and asset by the PV of the capital lease.
You add the lease expense to EBIT because you want to remove the expense. You deduct the depreciation because now it’s a capital lease.
Yes, my question is about the B/S, there was a question in the CFA item sets, when adjusting the liability side, they deducted the interest and added the rent from the total amount. My question is why did that formula take place since it is an entry that should take place in the Income statement and the remaining amount which is capitalized should be recorded on the B/S.
Which liability did they change?