Question

E5-1 Service revenue LO1 Alpine West Lid, operates a downhill ski area near Lake Tahoe, California. An all-day, adult ticket can be purchased for $55. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from December 1 through April 30. The season pass is nontransferable, and the $450 price is nonrefundable. Alpine expects its season pass holders to use their passes equally throughout the season. The company's financial year ends on December 31. On November 6, 2013, Jake Lawson purchased a season ticket. Required: 1. When should Alpine West recognize revenue from the sale of its season passes? 2. Prepare the appropriate journal entries that Alpine would record on November 6 and December 31, 3. What will be included in the 2013 income statement and 2013 statement of financial position related to the sale of the season pass to Jake Lawson?

Answer 1

1) Solution: Equally throughout the season

Explanation: The Company would recognize revenue over ski season on the basis of anticipated usage, in the given scenario it will be equally throughout the season. The fact that $450 price is non-refundable would be irrelevant. Revenue must be recognized when earned, in the given scenario the services are provided during ski season

2) Nov. 6, 2013 Dr. Cash 450

Cr. Unearned revenue 450

Dec. 31, 2013 Dr. Unearned revenue 90

Cr. Revenue 90

(450* 1/5 = $90)

　

3) Solution: Income statement: $90; Current liability: $450 - $90 = $360