United Continental Holdings Inc. is the parent company of both United Airlines and Continental Airlines. On the
Question:
United Continental Holdings Inc. is the parent company of both United Airlines and Continental Airlines. On the December 31, 2014, balance sheet the company lists as a current liability $2.1 billion of “Frequent Flyer Deferred Revenue” and as a long-term liability $2.9 billion for the same account. To reward loyal customers the airlines offer free travel. The footnotes to the 2014 financial statements contain the following information:
United’s Mileage Plus program is designed to increase customer loyalty. Program participants earn miles by flying on United and certain other participating airlines. . . . In the case of the sale of air services, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a portion of the ticket sale representing the value of the related miles. . . .
REQUIRED:
a. What is meant by “Deferred Revenue” and where does it fi t into the accounting process and the financial statements?
b. Discuss the cash fl ow implications of the $5.0 billion in deferred revenue for United Continental in 2014 and future years.
c. How do you think an analyst following the company would react to a sharp change (increase or decrease) to the amount of deferred revenue on the balance sheet?
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Step by Step Answer:
a Deferred revenue is a liability that represents the obligation that United Continental has to its ...View the full answer
