Answered step by step
Verified Expert Solution
Question
1 Approved Answer
(a) It is early in February 2022 and you are conducting the audit of Bel Air's 2021 financial statements. Through discussion with Bel Air's
(a) It is early in February 2022 and you are conducting the audit of Bel Air's 2021 financial statements. Through discussion with Bel Air's Chief Financial Officer you learn of matter that have not yet been incorporated into the 2021 financial statements: During 2021, Bel Air began a customer loyalty program that would grant members award miles for each flight taken. Members can redeem the miles, which expire five years after issuance, for future flights. To obtain a flight under the award program, members must redeem 15,000 miles and pay a $1,000 service charge. According to the CFO, the awarded miles are treated as a part of the paid flight. Therefore, part of the paid flight revenue should be set aside as unearned award miles revenue" for the awarded miles, such that it would be earned upon redemption of the awarded miles. In 2021, Bel Air received $100,000,000 cash flight revenue for flights taken in 2021. A total of 9,375,000 miles were awarded in 2021. Bel Air expects that 80% of the awarded miles will be redeemed before they expire. The fair value of the expected redemptions is estimated to be $750,000. Management anticipates that 40% of the forecast award flights will be taken in 2022; 30% will be taken in 2023; and the remainder will be taken evenly during 2024-2026.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started