Question

Ski West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day adult lift ticket can be purchased for $75. 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, 2021, Jake Lawson purchased a season pass for $405. Required: When should Ski West recognize revenue from the sale of its season passes? Prepare the appropriate journal entries that Ski West would record on November 6 and December 31. What will be included in the Ski West 2021 income statement and balance sheet related to the sale of the season pass to Jake Lawson?

Answer 1

Answer:

a) It will accrue revenue through time. As in November 6th it has the obligation to keep the downhill ski open or return the cash

cash   405 debit

unearned reveue 405 credit

--to record sales of season pass--

unearned revenue 81 debit

   service revenue      81 credit

--year-end adjustment for accrued revenue--

Income statetent

service revenue 81

Balance sheet

Liaiblities

unearned revneue 324

Explanation:

We must recognize revneue following the acounting pricniples of conservatisim and matching when the time at they occur.

405 is the cost for 5 months (Dec 1st to April 30th)

so 405 / 5 = 81 cost per month

At decmeber 31th we recognize 1 month

ANd this will be the value included in the income statement