Revenue Recognition Methods Following are excerpts from the footnote disclosures of two companies, both in the business of transporting passengers:

a. Explain the revenue recognition issues faced by airlines.
What method does American Airlines use in recognizing revenues? How does American Airlines treat amounts received from the sale of tickets prior to recognizing revenue? How would you justify this treatment?

b. Explain the revenue recognition issues faced by cruise lines. What method(s) does Carnival use in recognizing revenues? How does Carnival treat amounts received for cruises prior to recognizing revenue? How would you justify this treatment?

c. Would it be appropriate for Carnival to recognize revenue at the beginning of each trip when the ship sails? Explain.

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American Airlines Passenger ticket sales are initially recorded as a current li- ability. Revenue derived from the sale is recognized at the time transportation is provided. Carnival Cruise Lines Customer cruise deposits, which represent unearned revenue, are included in the balance sheet when received and are rec- ognized as cruise revenue upon completion of voyages with durations of ten days or less and on a pro rata basis com- puted using the number of days completed for voyages in ex- cess of ten days. Revenues from tour and related services are recognized at the time the related service is performed.