When American Airlines sells tickets for future flights, it debits Cash and credits an accountentitled Air Traffic Liability (as opposed to crediting Passenger Revenue Earned). This account,reported recently at $4.5 billion, is among the largest liabilities appearing in the company’s balancesheet.a. Explain why this liability is often referred to as a deferred revenue account.b. What activity normally reduces this liability? Can you think of any other transaction thatwould also reduce this account?c. Assume that, in a recent flight, passengers of the airline used tickets that they had purchasedin advance for $200,000. Record the entry American Airlines would make upon completionof this flight.
When American Airlines sells tickets for future flights, it debits Cash and credits an account
entitled Air Traffic Liability (as opposed to crediting Passenger Revenue Earned). This account,
reported recently at $4.5 billion, is among the largest liabilities appearing in the company’s balance
sheet.
a. Explain why this liability is often referred to as a deferred revenue account.
b. What activity normally reduces this liability? Can you think of any other transaction that
would also reduce this account?
c. Assume that, in a recent flight, passengers of the airline used tickets that they had purchased
in advance for $200,000. Record the entry American Airlines would make upon completion
of this flight.
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