Royal Caribbean is one of t he world' s largest cruise line companies. Its printing costs for brochures are initially recorded as Prepaid Advertising and are later charged to Advertising Expense when they are mailed. Passenger deposits for upcoming cruises are considered unearned revenue and are recorded as Customer Deposits as cash is received. Deposited amounts are later converted to Cruise Revenue as voyages are completed.
a. Where in its financial statements does Royal Caribbean report Prepaid Advertising? Where in its financial statements does it report Customer Deposits?
b. Prepare the adjusting entry necessary when brochures costing $2 million are mailed.
c. In its most recent annual report, Royal Caribbean reported Customer Deposits of $1.5 billion. Prepare the adjusting entry necessary in the following year as $40 million of this amount is earned.
d. Consider the entire adjusting process at Royal Caribbean. Which adjusting entry do you think results in the most significant expense reported in the company's income statement?