Adjusting Balance Sheet and Income Statement for Asset Disposal On its 2019 income statement, American Airlines reported a gain of $123 million on sale of property and equipment that the company had used for the prior five years. For an accurate year by year assessment, we want to adjust American Airlines' financial statements for each of the past five years (including the current year). Assume that the company's tax rate is 22%. a. For the income statement effects related to the gain on asset disposal, identify with numbers the adjustments for each of the five years 2015 to 2019 for the following line items. Note: Use a negative sign to indicate if an adjustment decreases an account balance. Note: Round answers to two decimals (for example, enter 14.56 for 14.55555). Income Statement Adjustments ($ millions) Current Year Gain Adjustments: Gain on disposal (reversal) Tax expense (reversal) 2015 2016 2017 2018 2019 $ (24.6) 5.41 (19.19) Net income (reversal) Allocation of Gain Adjustments: Depreciation expense Tax expense Net income (allocation) $ Total net income (reversal + allocation) 24.6 $ (5.41) 19.9 0 $ 24.6 $ (5.41) 19.9 0 $ 24.6 $ (5.41) 19.9 0 $ 24.6 (5.41) 24.6 (5.41) 19.9 0 $ 19.9 0 b. For the balance sheet effects related to the gain on asset disposal, identify with numbers the adjustments for each of the five years 2015 to 2019 for the following line items. Note: Use a negative sign to indicate if an adjustment decreases an account balance. Note: Round answers to two decimals (for example, enter 14.56 for 14.55555). Balance Sheet Adjustments ($ millions) 2015 2016 2017 2018 2019 Accumulated depreciation $ Deferred tax liability Retained Earnings $ 24.6 $ (5.41) (19.19) $ 49.2 $ (10.82) (38.38) $ 73.8 $ (16.23) (57.57) $ 98.4 $ (21.64) (76.76) $ 123 (27.06) (95.94) c. What purpose there to adjusting the income statement and balance sheet in this specific case? To adjust for overstated depreciation expense across years
Adjusting Balance Sheet and Income Statement for Asset Disposal On its 2019 income statement, American Airlines reported a gain of $123 million on sale of property and equipment that the company had used for the prior five years. For an accurate year by year assessment, we want to adjust American Airlines' financial statements for each of the past five years (including the current year). Assume that the company's tax rate is 22%. a. For the income statement effects related to the gain on asset disposal, identify with numbers the adjustments for each of the five years 2015 to 2019 for the following line items. Note: Use a negative sign to indicate if an adjustment decreases an account balance. Note: Round answers to two decimals (for example, enter 14.56 for 14.55555). Income Statement Adjustments ($ millions) Current Year Gain Adjustments: Gain on disposal (reversal) Tax expense (reversal) 2015 2016 2017 2018 2019 $ (24.6) 5.41 (19.19) Net income (reversal) Allocation of Gain Adjustments: Depreciation expense Tax expense Net income (allocation) $ Total net income (reversal + allocation) 24.6 $ (5.41) 19.9 0 $ 24.6 $ (5.41) 19.9 0 $ 24.6 $ (5.41) 19.9 0 $ 24.6 (5.41) 24.6 (5.41) 19.9 0 $ 19.9 0 b. For the balance sheet effects related to the gain on asset disposal, identify with numbers the adjustments for each of the five years 2015 to 2019 for the following line items. Note: Use a negative sign to indicate if an adjustment decreases an account balance. Note: Round answers to two decimals (for example, enter 14.56 for 14.55555). Balance Sheet Adjustments ($ millions) 2015 2016 2017 2018 2019 Accumulated depreciation $ Deferred tax liability Retained Earnings $ 24.6 $ (5.41) (19.19) $ 49.2 $ (10.82) (38.38) $ 73.8 $ (16.23) (57.57) $ 98.4 $ (21.64) (76.76) $ 123 (27.06) (95.94) c. What purpose there to adjusting the income statement and balance sheet in this specific case? To adjust for overstated depreciation expense across years
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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8.
Please answer all the tables in their entirely
Transcribed Image Text:Adjusting Balance Sheet and Income Statement for Asset Disposal
On its 2019 income statement, American Airlines reported a gain of $123 million on sale of property and equipment that the company had used for the prior five years. For an accurate year by year assessment,
we want to adjust American Airlines' financial statements for each of the past five years (including the current year). Assume that the company's tax rate is 22%.
a. For the income statement effects related to the gain on asset disposal, identify with numbers the adjustments for each of the five years 2015 to 2019 for the following line items.
Note: Use a negative sign to indicate if an adjustment decreases an account balance.
Note: Round answers to two decimals (for example, enter 14.56 for 14.55555).
Income Statement Adjustments ($ millions)
Current Year Gain Adjustments:
Gain on disposal (reversal)
Tax expense (reversal)
2015
2016
2017
2018
2019
$
(24.6)
5.41
(19.19)
Net income (reversal)
Allocation of Gain Adjustments:
Depreciation expense
Tax expense
Net income (allocation)
$
Total net income (reversal + allocation)
24.6 $
(5.41)
19.9
0 $
24.6 $
(5.41)
19.9
0 $
24.6 $
(5.41)
19.9
0 $
24.6
(5.41)
24.6
(5.41)
19.9
0 $
19.9
0
b. For the balance sheet effects related to the gain on asset disposal, identify with numbers the adjustments for each of the five years 2015 to 2019 for the following line items.
Note: Use a negative sign to indicate if an adjustment decreases an account balance.
Note: Round answers to two decimals (for example, enter 14.56 for 14.55555).
Balance Sheet Adjustments ($ millions)
2015
2016
2017
2018
2019
Accumulated depreciation
$
Deferred tax liability
Retained Earnings
$
24.6 $
(5.41)
(19.19) $
49.2 $
(10.82)
(38.38) $
73.8 $
(16.23)
(57.57) $
98.4 $
(21.64)
(76.76) $
123
(27.06)
(95.94)
c. What purpose
there to adjusting the income statement and balance sheet in this specific case?
To adjust for overstated depreciation expense across years
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