Frequent flyer program (in part): The Company utilizes a number of estimates in

Question

Frequent flyer program (in part): The Company utilizes a number of estimates in accounting for its WorldPerks frequent flyer program. The company accounts for the frequent flyer program obligations by recording a liability for the estimated incremental cost of flight rewards expected to be redeemed on Northwest and other airline partners. Customers are expected to redeem their mileage, and a liability is recorded, when their accounts accumulate the minimum number of miles needed to obtain one flight reward.

The number of estimated travel awards outstanding and expected to be redeemed at December 31, 2006, 2005, and 2004 was approximately 3.6, 3.6, and 3.8 million, respectively. Northwest recorded a liability for these estimated rewards of 269 million, 248 million, and 215 million at December 31, 2006, 2005, and 2004 respectively.

$ In millions
_____________
Current Liabilities 2006 2005

Air Traffic Liability $1,557 $1,586

Prepare a Journal Entry appropriate to recognize Northwest's expense and liability assuming the liability for the frequent flyer program is included in the Air Traffic Liability.

I am not sure where to begin to get the figure that I need.

I think I will be Dr. Operating Expense and Cr. Air Traffic Liability
As to the exact number I should use, I am not certain.
_______________________________________________________________________

Explanation / Answer

2004 Dr. Operating Expense $215 million Cr. Air Traffic Liability $215 million ---------------------------------------------------------------------------- 2005 Dr. Operating Expense $248 million Cr. Air Traffic Liability $248 million ---------------------------------------------------------------------------- 2006 Dr. Operating Expense $269 million Cr. Air Traffic Liability $269 million

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.