Alpine West, Inc., operates a downhill ski area near Lake Tahoe, California. An

Question

Alpine West, Inc., 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 non refundable. Alpine expects its season pass holders to use their passes equally throughout the season. The company's fiscal 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?


Equally throughout the season
Full amount before the season
Full amount after the season

2.

Prepare the appropriate journal entries that Alpine would record on November 6 and December 31. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Use months, rather than days, to calculate the earned and unearned revenue amounts.)

Explanation / Answer

Day-passes are recognized as earned revenue on the day they are issued (sold on Saturday, recognize the revenue on Saturday) Season passes, however, should be recorded as "Unearned Revenue" (which is a LIABILITY account) and then recognized as "Earned Revenue" proportionally throughout the season. Thus, the accountant would recognize $90 (ie $450/5month) of each Season Pass at the end of each calendar month. The Journal Entry relevant to Season Pass would be as follows: 2013 Nov 6 Dr. Cash $450 Cr. Unearned Revenue $450 Nov30 Dr. Unearned Revenue $90 Cr. Earned Revenue $90 Dec 31 Dr. Unearned Revenue $90 Cr. Earned Revenue $90 Then on the Income Statement, $180 of Jake Lawson's Season Pass purchase price would be included in the Revenue for 2013, and the Balance Sheet would show remaining $270 of Jake Lawson's Season Pass in Unearned Revenue (Liabiity account) and $180 in Earned Revenue (Revenue account).

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