Continental Airlines, Inc
Cases in Financial Reporting
Continental Airlines, Inc - Leases
Anderson, John
Armanini, Nathan
Avery, Sarah
Hacker, Matthew
Adkins, Lindsay
To: Larry Tomassini
From: Group 6
Subject: Case Study #3 – Continental Airlines, Inc. - Leases
Date: February 22, 2011
This memo contains a lease analysis of the case titled: Continental Airlines, Inc - Leases. All numbers contained in this memo are in millions.
D. i. Rental Expense (Aircraft Equipment) $896 Rental Expense (Non-aircraft Equipment) $310 Cash $1,206 ii. Rental Expense (Aircraft Equipment) $897 Rental Expense (Non-aircraft Expense) $360 Cash $1,257
E. “Owned Property and Equipment – Flight Equipment” totaling $6,574 represents the book value of all the planes that Continental owns outright, plus the original present value of all capital leased planes comprised of 164 planes. “Capital Leases – Flight Equipment” totaling $107 is equal to the original present value of the planes under capital lease comprised of 7 planes under capital lease.
F. Depreciation Expense $186.26 Accumulated Depreciation $186.26 This amount was calculated by using the amount corresponding to “Flight Equipment” of $6,574 on the balance sheet minus the residual value of 15% divided by 30 years: [(6,574 – (6,574*.15)]/30 = 186.26. This is based on the assumption that the entire $6,574 represents only aircraft and that they are still within their useful life.
G. Under the assumption that “Flight Equipment” consists of only aircraft, the capital leased amount of $107 on the balance sheet was straight-line amortized for 20 years. The result was an amortized amount of $5.35 for 2003. (107/20 = 5.35)
Cash $5.35 Capital Lease Receivable $5.35
H. The $323 would be part of “Owned Property and Equipment: Flight Equipment” on the asset side of the balance sheet. On the liability side of the balance sheet, $40 would be found
Continental Airlines, Inc - Leases
Anderson, John
Armanini, Nathan
Avery, Sarah
Hacker, Matthew
Adkins, Lindsay
To: Larry Tomassini
From: Group 6
Subject: Case Study #3 – Continental Airlines, Inc. - Leases
Date: February 22, 2011
This memo contains a lease analysis of the case titled: Continental Airlines, Inc - Leases. All numbers contained in this memo are in millions.
D. i. Rental Expense (Aircraft Equipment) $896 Rental Expense (Non-aircraft Equipment) $310 Cash $1,206 ii. Rental Expense (Aircraft Equipment) $897 Rental Expense (Non-aircraft Expense) $360 Cash $1,257
E. “Owned Property and Equipment – Flight Equipment” totaling $6,574 represents the book value of all the planes that Continental owns outright, plus the original present value of all capital leased planes comprised of 164 planes. “Capital Leases – Flight Equipment” totaling $107 is equal to the original present value of the planes under capital lease comprised of 7 planes under capital lease.
F. Depreciation Expense $186.26 Accumulated Depreciation $186.26 This amount was calculated by using the amount corresponding to “Flight Equipment” of $6,574 on the balance sheet minus the residual value of 15% divided by 30 years: [(6,574 – (6,574*.15)]/30 = 186.26. This is based on the assumption that the entire $6,574 represents only aircraft and that they are still within their useful life.
G. Under the assumption that “Flight Equipment” consists of only aircraft, the capital leased amount of $107 on the balance sheet was straight-line amortized for 20 years. The result was an amortized amount of $5.35 for 2003. (107/20 = 5.35)
Cash $5.35 Capital Lease Receivable $5.35
H. The $323 would be part of “Owned Property and Equipment: Flight Equipment” on the asset side of the balance sheet. On the liability side of the balance sheet, $40 would be found