Question

a.Identiofy the methods used by Southwest Airlines,American Airlines and Delta Airlines to value the inventories.

b.Which method is used to prepare the cash flow statement ,direct or indirect for these companies?

Answer 1

Inventories primarily consist of aircraft fuel, flight equipment expendable parts, materials, and
supplies. All of these items are carried at average cost, less an allowance for obsolescence. These items
are generally charged to expense when issued for use. The reserve for obsolescence was immaterial at
December 31, 2019, and 2018. In addition, the Company’s provision for obsolescence and write-offs
for 2019, 2018, and 2017 were each immaterial.

Inventories valuation of delta airlines

Fuel. As part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel our wholly owned subsidiaries, Monroe Energy, LLC
and MIPC, LLC (collectively, "Monroe"), operate the Trainer oil refinery. Refined product, feedstock and blendstock inventories, all of which are finished goods,
are carried at recoverable cost. We use jet fuel in our airline operations that is produced by the refinery and procured through the exchange with third parties of
gasoline, diesel and other refined products ("non-jet fuel products") the refinery produces. Cost is determined using the first-in, first-out method. Costs include the
raw material consumed plus direct manufacturing costs (such as labor, utilities and supplies) incurred and an applicable portion of manufacturing overhead.
Expendables Parts and Supplies. Inventories of expendable parts related to flight equipment, which cannot be economically repaired, reconditioned or reused
after removal from the aircraft, are carried at moving average cost and charged to operations as consumed. An allowance for obsolescence is provided over the
remaining useful life of the related fleet. We also provide allowances for parts identified as excess or obsolete to reduce the carrying costs to the lower of cost or
net realizable value. These parts are assumed to have an estimated residual value of 5% of the original cost.

Inventory can be measured by days sales of inventory (DSI). American Airlines Group's days sales of inventory (DSI) for the three months ended in Sep. 2020 was 47.25.

Days Inventory indicates the number of days of goods in sales that a company has in the inventory. American Airlines Group's Days Inventory for the three months ended in Sep. 2020 was 26.72.

cash flow method:

American Airlines : Indirect methods

Southwest Airlines: indirect methods

Delta Airlines:Indirect methods