A Major Airline Issues Frequent Flyer Credits That Allow the Passenger

question 25

Essay

A major airline issues frequent flyer credits that allow the passenger to receive credit toward future flights. For every ticket sold the customer receives a credit which, when 40 are collected, can be exchanged for a free ticket. During the year, the airline company recorded revenues of $60 million, which represented 100,000 tickets. The airline did not recognize the flyer credits on its income statement or its balance sheet. In the context of contingent liabilities, comment on the airline's accounting procedures.

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Definitions:

Stock Exchange

A stock exchange is a marketplace where securities, such as stocks and bonds, are bought and sold, facilitating capital exchange between investors and companies.

Demand

The desire, willingness, and ability of consumers to purchase goods or services at a given price.

Junk Bond

A high-risk, high-yield bond issued by companies considered to be at greater risk of defaulting on their debt obligations.

Corporate Bond

A debt security issued by a corporation to raise funding, offering periodic interest payments and the return of the principal at maturity.