This post addresses revenue recognition issues.
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1. Delta Airline books a reservation for a round trip flight to Orlando for Ming Tsai on April 12. Delta charges the $425 to Tsai's Visa card on April 13 and receives the cash from Visa on May 1. The round trip flight commences on May 15. The ticket is nonrefundable.
2. Highlife Ski Resort in Colorado sells season pass to Larry Werner on October 15. Highlife usually opens its season just after Thanksgiving and stays open until approximately April 30.
3. Dixon Management requires tenants to sign a three year lease and charge $5,000 per month for one floor in its midtown high-rise. In addition to the monthly fee, payable at the beginning of each month, tenants pay a nonrefundable fee of $12,000 to secure the lease.
4. Janora Hawkins, attorney, agrees to accept an accident victim's. Hawkins will be paid on contingency basis. That is, if she wins the case, she will receive 30% of the total settlement. The case commences on July 15 and is settled successfully on August 28. On September 15, Hawkins receives her contingency payment of $60,000.
For each of the above situations, determine the appropriate timing of revenue recognition.
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Solution Summary
The solution provides a detailed explanation discussing how and when revenue would be recognized in each scenario.
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1. Delta Airline books a reservation for a round trip flight to Orlando for Ming Tsai on April 12. Delta charges the $425 to Tsai's Visa card on April 13 and receives the cash from Visa on May 1. The round trip flight commences on May 15. The ticket is nonrefundable.
The revenue is recognized on May 15th. They book it on the 12th - no money has changed hands. Delta charges the card in April - the revenue isn't yet recognized. No service has been provided. They receive the cash May 1st, but we're still missing the element of service until May 15th. They cannot recognize it before 05/15.
2. Highlife Ski Resort in Colorado sells ...
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