Question: The current liabilities of WestJet Airlines include the advance ticket

The current liabilities of WestJet Airlines include the advance ticket sales account. The company’s recent annual reports show the following trend in the balance of this account over a three- year period:
The first note to the company’s financial statements, titled Significant accounting policies, includes the following disclosure about revenue recognition: Guest revenues, including the air component of vacation packages, are recognized when air transportation is provided. Tickets sold but not yet used are included in the consolidated balance sheet as advance ticket sales.
1. What does the balance in the advance ticket sales account represent?
2. Why does WestJet recognize guest revenue when transportation is provided, rather than when cash is received?
3. How does WestJet Airlines normally settle this liability?
4. Should WestJet recognize flight expenses, such as jet fuel, salaries of flight crew, and cost of food and beverage, in the period when the flights occur or during the period when tickets are sold? Explain.
5. Explain the most probable reason for the increase in the amount of this liability from 2010 to 2012.
6. Based on the trend in the amount of this liability, would you expect the annual amounts of guest revenue to increase, decrease, or remain stable over the three- year period? Explain.

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  • CreatedAugust 04, 2015
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