Reporting a Liability McDonald’s is one of the world’s most popular fast food restaurants, offering good food and convenient locations. Effective management of its properties is a key to its success. As the following note in its current annual report indicates, McDonald’s both owns and leases property:
The Company owns and leases real estate primarily in connection with its restaurant business. The Company identifies and develops sites that offer convenience to customers and long term sales and profit potential to the Company. The Company generally owns the land and building or secures long term leases for restaurant sites, which ensures long term occupancy rights and helps control related costs.
Required:
Should McDonald’s report lease obligations on its balance sheet? Explain. If the obligation should be reported as a liability, how should the amount be measured?