It is early in February 2022 and you are conducting the audit of Bel Air's 2021...
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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 redeem 15,000 miles and pay a $1,000 service charge. UN program, members must For Later File Preview 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. Apart from Bel Air, the HK Airport Parking Co (HKAP) also awards its customers 25 award miles per overnight stay, in Bel Air's award mileage program. The HKAP is not an agent for Bel Air. The price paid by HKAP for each award mile is equal to its fair value to Bel Air. In 2021, parking revenues of HKAP were $520,000, with 40,000 miles awarded to HKAP's customers. Required: Explain and show journal entries of how HKAP should record the above transactions in 2021. 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 redeem 15,000 miles and pay a $1,000 service charge. UN program, members must For Later File Preview 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. Apart from Bel Air, the HK Airport Parking Co (HKAP) also awards its customers 25 award miles per overnight stay, in Bel Air's award mileage program. The HKAP is not an agent for Bel Air. The price paid by HKAP for each award mile is equal to its fair value to Bel Air. In 2021, parking revenues of HKAP were $520,000, with 40,000 miles awarded to HKAP's customers. Required: Explain and show journal entries of how HKAP should record the above transactions in 2021.
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