It Is Early in February 2017 and You Are Conducting

question 62

Essay

It is early in February 2017 and you are conducting the audit of Blast Off Airline's 2016 financial statements.Through discussion with Blast Off's Chief Financial Officer you learn of matters that have not yet been incorporated into the 2016 financial statements:
During 2016,Blast Off began a customer loyalty program.For each aeronautical mile that a passenger travels on a paid flight,the passenger accrues one flight mile.Passengers can redeem accrued flight miles for free air travel.Earned miles do not expire.Blast Off's analysis of its competitors' programs suggests an average redemption rate of 55%.In 2016,Blast Off awarded 50,000,000 flight miles,1,375,000 of which were redeemed.Management estimates the fair value of the flight miles is $540,000.
Required:
Prepare the journal entries to record the required adjustments for the above event.

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Definitions:

Non-Adjusting Event

An event that occurs after the reporting period that does not necessitate adjustments to the financial statements because it does not provide new information about conditions at the end of the reporting period.

Doubtful Debts Expense

An accounting concept referring to the provision a company makes to account for amounts it expects will not be collected from debtors.

Depreciation Expense

An accounting method that allocates the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Long-Service Leave

An employee benefit offering paid leave to those who have been employed by the same company for a long period of time, typically recognized in countries like Australia.