Question
Reformulation for Multi-Year Capitalization of Operating Leases Use the information provided below for Southwest Airlines to answer the requirements. $ millions201320142015Net operating assets (NOA)$ 7,448$
Reformulation for Multi-Year Capitalization of Operating Leases
Use the information provided below for Southwest Airlines to answer the requirements.
$ millions201320142015Net operating assets (NOA)$ 7,448$ 6,923$ 7,929Net nonoperating obligations (NNO)(332)(296)127Total stockholders' equity7,7807,2197,802Net nonoperating expenses (NNE)130129117Net operating profit after tax (NOPAT)8841,2652,298Net income7541,1362,181Revenue19,25420,16021,375
Below are the adjustments that analysts would use to account for Southwest's operating leases as if they were capitalized. Adjustments are based on the present value of Southwest's operating leases for fiscal years 2013-2015.
Balance Sheet Adjustments ($ millions)201320142015Net operating assets (NOA)+3,267+4,244+3,188Net nonoperating obligations (NNO)+3,267+4,244+3,188Equity000
Income Statement Adjustments ($ millions)201320142015Interest expense+129+167+126Net nonoperating expense, NNE+81+105+79Net operating profit after tax, NOPAT+81+105+79Net income000
a. Compute the following ratios using the unadjusted and the adjusted numbers for each year. For simplicity only, use year-end balances for NOA, NNO, and equity.
- Round ROE, RNOA, and NOPM to one decimal place (ex: 0.2345 = 23.5%).
- Round NOAT and FLEV to two decimal places.
- Use negative signs with answers, when appropriate.
201320142015UnadjustedAdjustedUnadjustedAdjustedUnadjustedAdjustedROEAnswer
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RNOAAnswer
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NOPMAnswer
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NOATAnswer
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FLEVAnswer
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b. Does the lease capitalization make a large difference in any of these ratios?
Lease capitalization makes a large difference in both the RNOA and FLEV ratios.
Lease capitalization makes a large difference in both the ROE and RNOA ratios.
Lease capitalization makes a large difference in both the RNOA and NOPM ratios.
Lease capitalization makes a large difference in both theROE and FLEV ratios.
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Essentials Of Accounting For Governmental And Not-for-Profit Organizations
Authors: Paul Copley
14th Edition
1260570177, 978-1260570175
