What is the balance sheet impact of Delta’s improvements to its LAX Terminal 5?

Delta Air Lines is partnering with the City of Los Angeles and Los Angeles World Airports (LAWA) to overhaul Terminal 5 at Los Angeles International Airport (LAX) for a total estimated cost of $240 million.  The project is expected to start in 2015. Delta is contributing $12 million for check-in and lounge improvements and the Transportation Security Administration (TSA) is contributing $25 million for the project in general.  The remainder of the funding will be provided by LAWA.

Questions

1.        Assume that, in 2015, Delta replaces the carpet throughout Terminal 5 and repaints all of the walls in that terminal. Assume the cost of carpeting and repainting comes to $4 million and that Delta pays with cash.  What is the impact on Delta’s assets in 2015 from this improvement project?  On its liabilities? On its equity?
2.        Assume now that Delta spends $8 million in 2015 on building a new lounge for the use of its frequent flyers.  Assume also that Delta issues long-term bonds to finance the construction of the new lounge. The new lounge is expected to be put into operation in early 2016. What is the impact on Delta’s assets in 2015 from the construction of the new lounge?  On its liabilities? On its equity?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions. The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)
• YouTube video (narrated article in shareable YouTube link)

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