Ski West. Inc.. operates a downhill ski area near Lake Tahoe. California. An all

Question

Ski West. Inc.. operates a downhill ski area near Lake Tahoe. California. An all-day adult lift ticket can be purchased for $85. 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. Ski West 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. 2016. Jake Lawson purchased a season pass for $450. Required: 1. When should Ski West recognize revenue from the sale of its season passes? 2. Prepare the appropriate journal entries that Ski West would record on November 6 and December 31. 3. What will be included in the Ski West 2016 income statement and balance sheet related to the sale of the season pass to Jake Lawson?

Explanation / Answer

Solution:

1. Ski West should recognize revenue equally througout the season because $450 is non-refundable that is not relevant to the decision of revenue recognition. Revenue should be recognized as it is earned, here services are provided during the Ski season.

2. November 6, 2016

Cash...........................$450

Unearned Revenue .............$450

(To record the cash collection)

Unearned Revenue ................... $90

Revenue ...................................$90*

(To recognize revenue earned in December)

*$450 x 1/5 = $90

3. $90 is included in revenue in 2016 incoe statement. The remaining $360 in unearned revenue is included in the current liability section of 2016 balance sheet.

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