AMR, parent of American Airlines, provides the following footnote information on its capital and operating leases: AMRs

AMR, parent of American Airlines, provides the following footnote information on its capital and operating leases:

AMR’s subsidiaries lease various types of equipment and property, primarily aircraft and airport facilities. The future minimum lease payments required under capital leases, together with the present value of such payments, and future minimum lease payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year as of December 31, 2010, were (in millions):

AMR further disclosed that “lease terms vary but are generally 10 to 25 years for aircraft and seven to 40 years for other leased property and equipment.” Assuming all leases are for aircraft with an average lease term of 15 years, what interest rate does AMR use to capitalize its capital leases? Use this rate to capitalize AMR’s operating leases at December 31, 2010. Record the adjustment to AMR’s balance sheet to reflect the capitalization of operating leases. How would this reporting change affect AMR’s Income Statement in 2011?

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Year Ending December 31, 2011 2012 2013 2014 2015 2016 and thereafter Capital Les Operating Leases S 186 136 120 98 87 349 S 976 S 372 S 1,254 1,068 973 831 672 6.006 S 10,804 Less amount representing interest Present value of net minimum lease payments S 60