Reading and Interpreting Carnival Cruise Corporation’s Balance Sheet The following item appears in the current liabilities section of Carnival Cruise Corporation’s balance sheet at November 30, 2008:

Customer deposits $2,519 million In addition, Note 2 to the fi nancial statements includes the following:

Revenue and Expense Recognition Guest cruise deposits represent unearned revenues and are initially recorded as customer deposit liabilities when received. Customer deposits are subsequently recognized as cruise revenues, together with revenues from onboard and other activities

(which include transportation and shore excursion revenues), and all associated direct costs of a voyage are recognized as cruise expenses, upon completion of voyages with durations of ten nights or less and on a pro rata basis for voyages in excess of ten nights.

Required 1. What economic event caused Carnival to incur this liability? Was it an external or internal event?

2. Describe the effect on the accounting equation from the transaction to record the customer deposits.

3. Assume that one customer makes a deposit of $1,000 on a future cruise. Determine the effect on the accounting equation from this transaction.

4. What economic event will cause Carnival to reduce its customer deposits liability?

Is this an external or internal event?

AppendixLO1