National Coach LinesNational Coach Lines sells passes that allow a passenger unlimited travel on the company’s buses for 60 days from the day the pass is first used. The conditions of the pass are as follows:

a) Passes must be purchased at least 90 days before they are first used.

b) Once purchased, the passes are not refundable.

c) Passes do not have to be paid for until the date of first use. Approximately 25% of the passes are paid for when purchased and 75% are paid on the date of first use. For example, if a pass is purchased on January 1, 2016, it cannot be used until April 1, 2016. (90 days from date of purchase) If the customer did not pay for the pass when initially purchased they must pay for it on April 1, 2016. The pass would be valid for travel between April 1, 2016, to May 30, 2016. (60 days from date of first use)

The management of National Coach Lines receives a bonus if the quarterly revenue is greater than budget goals. They are not penalized financially if revenue is less than quarterly goals.

Assuming a bus pass sells for $100and 60 passes are sold on January 1, 2016, answer the following required:

1) Identify and explain the possible timing options for revenue recognition based on the case facts.

2) Explain the criteria that national Coach Lines should consider in order to recognize the revenue?

3) Using your professional judgment and applying the revenue recognition criteria discuss the options identified in 1) above and provide a recommendation on when the revenue should be recognized and how much should be recognized.

Answer rating: 100% (QA)

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