Case 2: Accounting for Leases At American Airlines
Topics:
• Accounting for Leases
• Managing a change in Accounting Rules
• On- and off-balance sheet obligations
• Valuation and financial statement impact of different accounting standards
What you need to do:
Read the assigned case (in coursepack) and answer the following questions:
1. Would you recommend that accounting standard setters require firms to capitalize variable leases under the new standard? Why of why not?
Sample solution
Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell.
In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.
God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.
Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.
To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.
References
Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.
Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.
Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.
Sample Answer
Sample Answer
Essay: The Impact of Capitalizing Variable Leases under New Accounting Standards
Introduction
Accounting for leases has been a subject of significant debate and scrutiny among standard setters, regulators, and corporations. The recent case of American Airlines sheds light on the complexities and implications of accounting for leases, particularly when it comes to variable leases. This essay delves into the question of whether accounting standard setters should require firms to capitalize variable leases under the new standard.
Thesis Statement
I recommend that accounting standard setters should require firms to capitalize variable leases under the new standard. This approach will lead to more transparent financial reporting, better alignment with economic reality, and a more accurate representation of a company’s financial position and performance.
Transparency in Financial Reporting
Capitalizing variable leases ensures that all lease-related obligations are reflected on the balance sheet, providing a clearer picture of a company’s financial health. By capitalizing variable leases, firms can avoid off-balance sheet financing, which has been a concern for investors and stakeholders. Transparency in financial reporting is crucial for maintaining trust and confidence in the capital markets.
Economic Reality Alignment
Capitalizing variable leases aligns with the principle of reflecting economic substance over legal form. Variable lease payments are linked to the usage or performance of the underlying asset, making them economically similar to fixed lease payments. Treating variable leases as operating expenses can distort a company’s financial position and performance, leading to misinterpretations by users of financial statements.
Accurate Financial Representation
By capitalizing variable leases, firms can provide a more accurate representation of their financial position and performance. Capitalized leases are recognized as assets and liabilities on the balance sheet, giving users a comprehensive view of a company’s leverage and liquidity. This approach also enhances comparability across companies and industries, as it eliminates inconsistencies arising from different lease accounting practices.
Conclusion
In conclusion, requiring firms to capitalize variable leases under the new accounting standard is a step in the right direction towards improving financial reporting quality and enhancing stakeholders’ understanding of a company’s financial position. This approach promotes transparency, aligns with economic reality, and facilitates accurate financial representation. Standard setters should prioritize the adoption of consistent and principles-based lease accounting standards to ensure the reliability and relevance of financial information for decision-making purposes.
