Decision Case: Southwest Airlines

Students read and interpret Southwest Airline’s Balance Sheet (LO 1, 3)

Decision Case 3-3 on page 150: (10 Points)

1. Southwest incurred this liability from the sale of plane tickets for future travel dates and estimated refunds and exchanges of tickets sold for past travel dates. In other words, customers purchased tickets for future flight dates giving Southwest a liability for these future flights owed. This is considered an external event because it is based off of an event interaction between Southwest and its environment (or customers).

2. The accounting equation is affected by a credit to cash from the sale of the tickets and a debit to air traffic liability because a service is owed in the future

3. Assuming one customer purchased a ticket for $500.00 in advance, the cash account would be credited $500.00 and the air traffic liability account would be debited $500.00 to show the service owed for the ticket purchased.

4. Southwest will be able to reduce its amount of air traffic liability once the customers take the flights they have already purchased. Southwest will then not owe these pending services and the liability will therefore decrease. This is also an external event.

Problem 4-8 in the text found on page 199: (10 points)

Cash and Accrual Income Statements for a Manufacturer.

Case 4-4 in the text found on page 206: (10 points)

The Use of Net Income and Cash Flow to Evaluate a Company.

Based on the income statement and the additional infomration given, prepare a statement of cash flows for Duke for 2008. (Simply list all of the cash inflows and outflows that relate to operations.)

1.See excel spreadsheet for statement of cash flows. Net Cash provided by operating activities = $270,000

On the basis of the income statement given and the statement of cash flows prepared in #1, do you think it would be a wise decision to join the company as its chief financial officer? Include in your response any additional questions that you...