Continental Airlines, Inc Essay

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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…show more content…
I. i. Using an Excel spreadsheet, the average interest rate was found to be 11%. ii. The estimated interest expense for 2004 will be $35.53. ($323 * .11 = $5.53) iii. The cash amount to be paid for these leases in 2004 will be $44. iv. Lease Payable $8.47 Interest Expense $35.53 Cash $44 v. As of December 31, 2003 the amount of the Capital Lease liability that is current equals $8.47 (the amount by which the principal will be reduced). This estimate differs from “current maturities of capital leases” because current maturities ($25) represent leases that will be retired during 2004. The payment of $44 is to the portfolio of all leases and therefore reflects the interest and principal portions in terms of all of the leases. The amount that actually went to interest and principal cannot be determined without accounting for each lease individually. J. i. The present value of the future minimum lease payments is equal to $8,546. This amount was calculated by discounting each of the payments at the given rate of 12%. ii. Leased Equipment $8,546 Lease Payable $8,546 iii. “Equipment and Property Under Capital Lease: Flight Equipment” will be reported as $8,869 which is equal to the original present value of the lease ($323) plus the converted amount ($8,546). “Total Assets” will be reported as $19,195 ($10,649 + 8,546 = 19,195) iv. “Long-Term Debt and Capital
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