Suppose American Airlines acquired a new Boeing 747 airplane for $250 million. Its expected residual value was $70 million. The company’s annual report indicated that straight-line depreciation was used based on an estimated service life of 25 years. Assume the company records gains or losses, if any, in Other Income (Expense).

Show all amounts in millions of dollars.

1. Assume that American sold the equipment at the end of the sixth year for $220 million cash. Compute the gain or loss on the sale. Show the effects of the sale on the balance sheet  equation, identifying all specific accounts by name. Where and how would the sale appear on the income statement?

2. (a) Show the journal entries for the transaction in requirement 1. (b) Repeat 2a, assuming that the cash sales price was $195 million instead of $220 million.