Sprint - Nextel 2015 Annual Report Download - page 96

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies and Other Information
Basis of Consolidation and Estimates
The consolidated financial statements include our accounts, those of our 100% owned subsidiaries, and subsidiaries we control or in which we have a
controlling financial interest. All intercompany transactions and balances have been eliminated in consolidation. Prior to the Clearwire Acquisition Date, we
applied the equity method of accounting to the investment in Clearwire because we did not have a controlling vote or the ability to control operating and financial
policies.
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP). This
requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Significant estimates and assumptions are used for, but are not
limited to, allowance for doubtful accounts, estimated economic lives and residual values of property, plant and equipment, fair value of identified purchased
tangible and intangible assets in a business combination and fair value assessments for purposes of impairment testing.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Change in Accounting Principle
In April 2015, the Financial Accounting Standards Board (FASB) issued authoritative guidance regarding Interest-ImputationofInterest,which
requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt
liability, consistent with debt discounts. In August 2015, the FASB added Securities and Exchange Commission paragraphs to this guidance, which address the
presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. We elected to adopt the guidance early with full
retrospective application effective January 1, 2016. Debt issuance costs associated with our unused credit facilities remain in "Other assets" on the consolidated
balance sheets and continue to be amortized over the term of the facilities as allowed by the guidance. Prior period debt issuance costs for all other debt totaling
$189 million , have been reclassified from "Other assets" to "Long-term debt, financing and capital lease obligations" on the consolidated balance sheets as of
March 31, 2015. Our adoption of this guidance did not have a material effect on our consolidated financial statements.
In November 2015, the FASB issued authoritative guidance regarding BalanceSheetClassificationofDeferredTaxes, which simplifies the
presentation of deferred income taxes by requiring all deferred income tax liabilities and assets be classified as noncurrent on the consolidated balance sheets. We
elected to early adopt the guidance as of January 1, 2016 and applied it prospectively, therefore, prior periods were not retrospectively adjusted. Our adoption of
this guidance did not have a material effect on our consolidated financial statements.
Change in Estimate
When estimating the value of returned inventory, we evaluate many factors and obtain information to support the estimated value of used devices and
their useful lives. During the year ended March 31, 2015, we observed sustained value and extended useful lives for handsets leading to an increase in the
estimated value for returned inventory. As a result, we revised our methodology and assumptions used in estimating the value for returned handsets during the year
ended March 31, 2015.
The change in estimate was accounted for on a prospective basis. The effect of the change in estimate, which was included in "Cost of products" in our
consolidated statements of operations, reduced our operating loss by approximately $80 million , or $0.02 per basic and diluted share, for the year ended March 31,
2015. In addition, this change resulted in an increase to "Device and accessory inventory" on the consolidated balance sheet of approximately $80 million .
Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents generally include highly liquid investments with maturities at the time of purchase of three months or less. These investments may
include money market funds, certificates of deposit, U.S. government and
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