Ski West, Incorporated, 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, 2024, Jake Lawson purchased a season pass for $450.
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 2024 income statement and balance sheet related to the sale of the season pass to Jake Lawson?
Ski West should recognize revenue from the sale of its season passes ratably over the course of the ski season, from December 1, 2024, to April 30, 2025.
On November 6, 2024, when Jake Lawson purchased the season pass, Ski West would record the following journal entry:
November 6, 2024:
Debit: Cash ($450)
Credit: Unearned Revenue ($450)
This entry recognizes the receipt of cash from the sale of the season pass but defers recognizing it as revenue until it is earned.
On December 31, 2024, at the end of the fiscal year, Ski West would record the following adjusting journal entry to recognize the earned portion of the revenue:
December 31, 2024:
Debit: Unearned Revenue ($82.50) [($450 / 5 months) * 1 month]
Credit: Revenue ($82.50) [($450 / 5 months) * 1 month]
This entry recognizes one month's worth of revenue earned from Jake Lawson's season pass.
In the Ski West 2024 income statement, the revenue related to the sale of the season pass to Jake Lawson will be included under the revenue section. The amount will be the total recognized portion of the season pass revenue for the fiscal year.
In the Ski West 2024 balance sheet, the unearned revenue related to the sale of the season pass to Jake Lawson will be included as a liability under the current liabilities section. The amount will be the remaining unearned portion of the season pass revenue at the end of the fiscal year.