ABSTRACT: There are currently no definitive guidelines for reporting the current and noncurrent portions of lease obligations. Two possible approaches to this problem of allocation-the change in present value approach and the present value of the next year's payments approach--have been identified by Swieringa [1984]. This article addresses two aspects of this financial reporting issue. First, evidence is presented to show that the change in present value approach appears to be dominant in current financial reporting practice. Second, it is shown that adjustment of the reported financial statement numbers to those that would be obtained by the present value of the next year's payments approach does not affect the ranking of companies by a number of financial measures. These results suggest that the issuing of guidelines for reporting the current and noncurrent portions of lease obligations by the FASB is not warranted.

ABSTRACT: A bond exchange is a transaction in which a corporation with an outstanding bond issue offers the current bondholders a new bond in exchange for the outstanding bonds. Bond exchanges affect firms by: (1) altering the cash payments to bondholders, (2) increasing reported earnings, (3) improving financial ratios such as debt/equity, and (4) affecting tax obligations. Although bond exchanges are fairly common, especially in the airline industry, these transactions may be difficult to analyze. This paper reviews the sequence of public disclosures involving an exchange offer, illustrates a present value method for evaluating bond exchanges, and compares the reported results with the "economic" results obtained from this method. Eastern Airlines' 1980 bond exchange is used for illustrative purposes.