Q1: SWA
How does SWA account for its frequent flyer program? Does this accounting make sense to you?
In 2020, SWA recognized passenger revenues of $7,665m (noted in Case). What percentage of ticket sales for that year were deferred? Given your answer, how significant are the costs of the program?
Q2: MP
Please outline the principles of revenue recognition? List these in bullet points or in a table.
Drawing on these principles, when should MP be allowed to recognize revenue on the Amgen contract?
A. When it signs the contract
B. When it receives cash
C. During the contract term, or
D. When the contract is completed
Why did you choose A, B, C or D above?
3. Given the method of reporting used, what transactions would have been recorded in relation to the contract when it was signed and at the end of 2018?
4. In 2019, the company announced that completion of the project would take longer than anticipated, and that it would use the percentage completion method to allocate the deferred revenues over time, rather than straight-line. Conceptually, how does each method work? Which method makes more sense to you? Why?
