Abstract
Amazon, an American entity operating in the retailing segment, has capital lease assets, which increase its overall debt levels. Its operating lease payments reduce its overall profitability. The cash flow statement shows a favorable cash position enjoyed by the entity. The positive balance was attributed to the entity’s operating activities.
Part F
Amazon Inc. has capital lease assets on its balance sheet. Such capital leases allow Amazon to significantly utilize or pay for the whole asset over its life span. The contractual term of such leases is more than a year. In note 4 of the annual report, the entity reported that its gross assets obtained through finance leases are showcased under the net property and equipment line item. As at the end of 2018 and 2019, the net property and equipment amounted to thirty-six billion dollars and fifty-seven billion dollars, respectively ("2019 Amazon annual report," n.d.). In this case, Amazon increased the assets under capital lease considerably in 2019. The entity’s expansion efforts contributed to the increase in the capital lease amount. In addition to assets under capital lease, it also had assets under operating lease as indicated by the operating lease cost amounting to $3.7 billion in 2019.
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The capital and operating lease agreements affect Amazon’s overall profitability and debt position. The capital and operating lease arrangements reduced the entity's profitability level. The possession of the capital lease assets, specifically property and equipment, meant that Amazon had to pay amortization expenses, which reduced the revenues and, subsequently, the net income. In addition, Amazon had to pay operating lease costs amounting to $3.7 billion in 2019, with the cost also reducing the profits ("2019 Amazon annual report," n.d.). The capital lease assets increased the debt owned by Amazon. In its notes, Amazon provided information regarding its types of leases and lease balances indicated on its balance sheet.
The information is essential since it shows Amazon, just like other entities, conforms to the new FASB codification standard, stating that leases should be recognized on the balance sheet.
Part G
Amazon is generating cash from its operating activities. In 2019, the cash provided by its operating activities amounted to $39 billion ("2019 Amazon annual report," n.d.). The cash flow was obtained from its various customers, including sellers, developers, commerce, and content creators. The operating cash flow was also derived from its advertisers. In addition to the operating activities, Amazon also realized cash from the positive foreign currency effect on its cash assets. In 2019, the realized seventy million due to the positive effects.
In 2019, the entity carried out various investment activities, including property and equipment purchases, acquisitions, and marketable securities purchases. The entity invested its funds in tripe A-rated money market funds as part of its marketable securities. It also acquired various companies for a total price of more than three hundred dollars. The property and equipment purchases were cash capital expenditures aimed at supporting the entity’s increase in technology infrastructure to support AWS.
In 2019, Amazon had considerable financing activities, which resulted in a negative cash balance of around ten billion dollars. The primary activities included the principal payments of its finance leases, long-term debt, and financing obligations ("2019 Amazon annual report," n.d.). The proceeds from its long-term debt offset the payments.
Amazon's overall cash position in 2019 was impressive, given that its total cash balance was $4.2 billion. The huge cash amount was realized despite significant cash spending with regard to its investment and financing activities. The balance was attributed to the high amount of cash provided by its operating activities.
A firm complies with FASB codification rules by adding a restricted cash balance to the cash flow statement's aggregate cash balance.
Reference
2019 Amazon annual report . (n.d.). AnnualReports. https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AMZN_2019.pdf .
