INSTRUCTIONS FOR JET BLUE LEASES ASSIGNMENT

Read the letter from Mr. Leo Bloom, a fictional Director of Financial Reporting for Jet BlueAirlines. Assume that this is a letter to you, as a member of the CPA firm Financial Accounting Associates (fill in your name for the blank space).

REQUIRED:Using actual information about the new lease accounting standard and about Jet Blue Airlines, prepare a letter to Mr. Bloom answering his questions. Your letter should be clear, well-written, word-processed and in proper business letter format.You will be graded on the quality and clarity of your writing as well as the accuracy of your answers. If you would like thorough feedback on your writing, please double-space your memo.

On My Gateway are links to excerpts from Jet Blue’s 2016 Statement 10-K, as well as the entire Statement 10-K (just in case you wish to read information not included in my excerpts). I have also included links to a couple of recent articles about the lease accounting changes. In addition, below are links to several resources to help you learn about the proposed accounting standard. You are not required to read the resources listed here, and you are free to consult other resources if you wish. Remember that if you directly reference or quote directly from any sources, you must properly credit the source.

You are welcome to discuss this assignment with your classmates or anyone else, but the written product that you submit must be your own, independent work.

In preparing your response to Mr. Bloom, assume the following:

  • To calculate the “what if” numbers in questions 3-5, assume the new standard went into effect on January 1, 2016, but was not in effect before that date.
  • The interest rate for all leases is 5%.
  • All lease payments for each year are made on January 1 of that year.
  • All aircraft leases will be treated as finance leases under the new standard.
  • The following assumptions apply to aircraft leases:
  • The aircraft lease payments for years after 2021 will be in equal amounts over the next four years(i.e., 2022, 2023, 2024, and 2025).
  • The leased aircraft are amortized using straight-line over 5 years with no salvage value.
  • All other leases will be treated as operating leases under the new standard.
  • The operating lease payments for years after 2021 will be in equal amounts over the next eight years(i.e., 2022 through 2029).
  • Income taxes will not be affected by the financial reporting change. You may ignore income taxes in your analysis.

If you need to make additional assumptions in your analysis, state those assumptions.

FASB News Release

FASB In Focus on Leases:

FASB Understanding Costs and Benefits:

“Lease accounting implementation a challenge for preparers,” Journal of Accountancy