Continental Airlines, Inc

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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.

Rental Expense (Aircraft Equipment)$896
Rental Expense (Non-aircraft Equipment)$310
Rental Expense (Aircraft Equipment)$897
Rental Expense (Non-aircraft Expense)$360

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)

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...
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