THE FREQUENT FLIER CASE 'A pretty fair fare Late in November, Blue Sky Airlines, a new...

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THE FREQUENT FLIER CASE 'A pretty fair fare" Late in November, Blue Sky Airlines, a new regional carrier, inaugurated its own frequent flier program to compete more effectively with established carriers. To differentiate its program from those of its competitors, Blue Sky adopted a plan based on the number of flights rather than miles flown. Named the "Fly-Five-Then-Free" program, it offers a free, unrestricted round-trip ticket for every five paid round-trip flights taken. With load factors ranging between 60 and 65 percent, Blue Sky has sufficient excess capacity to accommodate the free rides. Seats are generally available even on popular flights because of no-shows, since most business travelers use Blue Sky's full-fare tickets, which impose no penalty for missing the flight. Thus, management thinks fare-paying passengers will rarely if ever have to be turned away to accommodate the free rides. Blue Sky therefore projects program costs to consist mainly of additional on-board meals (about $3 each) and ticket writing (about $2 each). The program also is designed to entice local companies to have their employees fly Blue Sky on business trips. Under its "Corporate Partners" program, Blue Sky credits member companies (rather than the traveler) for a free round trip for every five business round trips taken. Hometown, Inc. immediately signed up for Blue Sky's Corporate Partners plan and directed that Blue Sky be used for all business trips to cities it serves. Willard Finster, the company's controller, anticipates each free trip earned will save Hometown about $300. By year-end, Hometown has accrued 10 free trips. Both Blue Sky and Hometown maintain their accounting records on a calendar-year basis. **** a. How should Hometown report the 10 free trips it is carrying over to the next calendar year? b. How should Blue Sky report the 10 free trips that Hometown has earned? THE FREQUENT FLIER CASE 'A pretty fair fare" Late in November, Blue Sky Airlines, a new regional carrier, inaugurated its own frequent flier program to compete more effectively with established carriers. To differentiate its program from those of its competitors, Blue Sky adopted a plan based on the number of flights rather than miles flown. Named the "Fly-Five-Then-Free" program, it offers a free, unrestricted round-trip ticket for every five paid round-trip flights taken. With load factors ranging between 60 and 65 percent, Blue Sky has sufficient excess capacity to accommodate the free rides. Seats are generally available even on popular flights because of no-shows, since most business travelers use Blue Sky's full-fare tickets, which impose no penalty for missing the flight. Thus, management thinks fare-paying passengers will rarely if ever have to be turned away to accommodate the free rides. Blue Sky therefore projects program costs to consist mainly of additional on-board meals (about $3 each) and ticket writing (about $2 each). The program also is designed to entice local companies to have their employees fly Blue Sky on business trips. Under its "Corporate Partners" program, Blue Sky credits member companies (rather than the traveler) for a free round trip for every five business round trips taken. Hometown, Inc. immediately signed up for Blue Sky's Corporate Partners plan and directed that Blue Sky be used for all business trips to cities it serves. Willard Finster, the company's controller, anticipates each free trip earned will save Hometown about $300. By year-end, Hometown has accrued 10 free trips. Both Blue Sky and Hometown maintain their accounting records on a calendar-year basis. **** a. How should Hometown report the 10 free trips it is carrying over to the next calendar year? b. How should Blue Sky report the 10 free trips that Hometown has earned?

Answer rating: 100% (QA)

ANSWER a Hometown should report the 10 free trips it is carrying over to the next calendar year as a ... View the full answer