Question

Magic Mountain accounts for revenues using the contract-based approach. It operates a ski resort in the Rocky Mountains of Alberta. They sell three types of ski tickets. Season tickets are sold throughout the year, and entitle the holder to ski any day all season long. They are non-refundable. Daily tickets are sold at the mountain and are only valid for the day they are sold. Corporate group tickets are sold throughout the year. The buyer receives a package of 20 daily ticket coupons at a discounted price and the coupons can be redeemed for a day of skiing any time during the season. The skier needs to present the coupon for a ticket on the desired ski day. Unused tickets (coupons) expire at the end of the season and are non-refundable. How should Magic Mountain account for the corporate tickets not redeemed?

a)They should estimate an amount at the time of sale and recognize it as revenue then.

b)They should estimate an amount at the time of sale and recognize it as revenue evenly throughout the ski season.

c)They should estimate an amount at the time of sale and recognize it as revenue proportionally every time a coupon is redeemed.

d)They should recognize it as revenue at the end of the ski season.

Answer 1

Answer : b)They should estimate an amount at the time of sale and recognize it as revenue evenly throughout the ski season.

Corporate group ticket once sold is not refundable even if it is left not redeemed at the end of the season . Ticket sold is revenue for Magic Mountain but in toccomply with the accounting guideline of the matching principle, they must be able to match the revenues to the expenses. Therefore they should recognize it as revenue evenly throughout the ski season.