Question

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.

Answer 1

	General Journal	Debit	Credit
a	Flight revenue	249,600.00
	Unearned revenue (award miles)		249,600.00
	(Being Allocation of ticket revenue to the Award Program)
b	Unearned revenue (award miles)	27,000.00
	Award Revenue		27,000.00
	(Being Recognization of Award Point Revenue)

Miles Expected to be Redeemed = 50,000,000 x 55% = 27,500,000

Award Revenue = 1,375,000/27,500,000 x 540,000 = 27,000