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Ski West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day adult lift ticket can be purchased for $85. Adulit customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from December 1 through April 30. Ski West expects its season pass holders to use their passes equally throughout the season. The company's fiscal year ends on December 31. On November 6, 2018, Jake Lawson purchased a season pass for $450.1. What will be included in the Ski West 2018 Income statement and balance sheet related to the sale of the season pass to Jake Lawson? Complete this question by entering your answers in the tabs below. 2. When should Ski West recognize revenue from the sale of its season passes?3. Prepare the appropriate ournal enteries that Sky West would record on November 6 and December 31.

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Answer:

Ski West, Inc.

1. What Ski West 2018 should include in its Income statement and balance sheet related to the sale of the season pass to Jake Lawson?

a) Income Statement:

Season Passes Revenue = $90 ($450/5).  This represents December season pass by Jake Lawson.

b) Balance Sheet:

Unearned Season Passes Revenue $360 as a current liability.

2. When Ski West should recognize revenue from the sale of its season passes:

Revenue should be recognized on December 31.

3. Journal Entries on November 6 and December 31:

November 6:

Debit Cash Account $450

Credit Unearned Season Passes Revenue $450

To record the receipt from Jake Lawson.

If this sale was on account, then the Accounts Receivable is debited instead.

December 31:

Debit Unearned Season Passes Revenue $90

Credit Season Passes Revenue $90

To record the earned revenue from Jake Lawson's.

Explanation:

Unearned revenue is not recognized in the income statement.  It is taken to the Balance Sheet as a current liability.  It is not recognized because it does not belong to the current period, as specified by the accrual concept and matching principle.

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