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 $65. 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, 2018, Jake Lawson purchased a season pass for $355.

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 2018 income statement and balance sheet related to the sale of the season pass to Jake Lawson?

Explanation / Answer

1. Ski West cannot recognize revenue on the date of season pass purchased by the customers. Ski West can recognize revenue only when it provides services to the customer.

2.

3.

$71 will be reported as revenue in the Ski West 2018 income statment and $284 ($355 - $71) will be reported as unearned revenue (liabilities) in the Ski West 2018 balance sheet

Date Account title and explanations Debit Credit Nov-06 Cash $ 355          Unearned revenue $ 355 (To record the sale of season pass) Dec-31 Unearned revenue ($355 * 1/5) $ 71           Service revenue $ 71 (To record the revenue earned in Dec)

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