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Chapter 13: 25Q (page 692)

Southeast Airlines Inc. awards members of its Flightline program a second ticket at half price, valid for 2 years anywhere on its flight system, when a full-price ticket is purchased. How would you account for the full-fare and half-fare tickets?

Short Answer

Expert verified

Full fare tickets are recorded as sales revenue while the half-fare tickets are recorded as unearned revenue.

Step by step solution

01

Definition of Unearned Revenue:

It is the amount which is received by the business firm but no asset has been transferred or no services has been provided for it. Whenever unearned revenue is recognized by business firm, the firm debit the account of unearned revenue and credit the resultant revenue account.

02

Airlines Revenues

The airline company records revenues when the passenger of the airline company uses the tickets purchased by it. Till then, the ticket sold by the airline industry is recorded as unearned revenue (air traffic liability).

When the passenger buys first ticket, the airlines company give second ticket at half price. Thus, it should record the complete price of first ticket and half price of second ticket as unearned revenue by debiting cash and crediting unearned revenue.

When the customer uses its first ticket, the price of first ticket will be transferred to sales revenue A/c. The price of second ticket will remain in the unearned revenue account till the customer uses that ticket.

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Most popular questions from this chapter

BE13-10 (L03) Scorcese Inc. is involved in a lawsuit at December 31, 2017. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.

Under IFRS, a provision is the same as:

(a) a contingent liability (c) a contingent gain

(b) an estimated liability (d) None of the above

CA13-2 (Current versus Noncurrent Classification) Rodriguez Corporation includes the following items in its liabilities at December 31, 2017.

l. Notes payable, \(25,000,000 due June 30, 2018.

2. Deposits from customers on equipment ordered by them from Rodriguez, \)6,250,000.

3. Salaries and wages payable, $3,750,000, due January 14, 2018.

Instructions

Indicate in what circumstances, if any, each of the three liabilities above would exclude from current liabilities.

Journal Entries for Fair Value and Equity Methods) The following are two independent situations.

Situation 1: Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of \(13 per

share on March 18, 2017. On June 30, Martinez declared and paid \)75,000 cash dividends to all stockholders. On December 31,

Martinez reported net income of \(122,000 for the year. At December 31, the market price of Martinez Fashion was \)15 per share.

Situation 2: Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles鈥檚 30,000 outstanding shares

of common stock at a total cost of \(9 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of \)36,000

to all stockholders. On December 31, Seles reported a net income of $85,000 for the year.

Instructions

Prepare all necessary journal entries in 2017 for both situations.

Question: On February 1, 2018, one of the huge storage tanks of Viking Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of February 15, 2018 (When the December 31, 2017, financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company as a consequence of the explosion. The company fully anticipates that suits will be filed and claims asserted for injuries and damages. Because the casualty was uninsured and the company is considered at fault, Viking Manufacturing will have to cover the damages from its own resources.InstructionsDiscuss fully the accounting treatment and disclosures that should be accorded the casualty and related contingent losses in the financial statements dated December 31, 2017.
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