# Continental Airlines, Inc

Topics: Depreciation, Asset, Balance sheet Pages: 4 (822 words) Published: February 21, 2011
Cases in Financial Reporting
Continental Airlines, Inc - Leases
Anderson, John

Armanini, Nathan

Avery, Sarah

Hacker, Matthew

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...