Case ID: 192040     Solution ID: 636     Words: 2257 Price $ 75

Accounting for Frequent Fliers Case Solution

Case Solution

Aircraft regular flier projects offer individuals the chance to gain free flights by collecting mileage. Bookkeeping and reporting the commitments of aircrafts and the expense of incessant flier projects raises troublesome estimation issues. In 1991, the U.S. Securities and Exchange.

Excel Calculations

·         Liability in case of Incremental Costs      

·         Liability in case of Deferred Revenue     

·         Incremental Revenue/Loss Analysis       

·         Entry for recording Deferred Revenue                  

·         Entry for recognizing Deferred Revenue                              

·         Equvilant Final Entry                      

·         United  Air  Lines,  Inc.  Statement  of  Consolidated Financial Position (in thousands, except share data)                               

·         United  Air  Lines,  Inc.  Statement  of  Consolidated Operations (in thousands, except per share)                                             

·         Pro Forma Balance Sheet for Year 1991 ( In $000)             

·         Pro Forma Income Statement for Year 1991 ( In $000)

Questions Covered

Part 1

1.      What are the various methods United might use to measure the costs of its frequent flier program? What are the potential differences in dollars of the cost measured by each method?

2.      What method should united use to measure the cost of its frequent flier program? Estimate the cost of the program using this method. Show all calculations and indicate the assumptions you make.

3.      If you were the chief financial officer (CFO) of United, how would you determine if continuing the frequent flier program would be beneficial to United?


Part 2

1.      Do you believe that United should account in its published financial statements for the frequent flier program or is "disclosure" in public filings with the SEC sufficient? Why?

2.      In either case, what is it that should be accounted for or disclosed? Why?

3.      What possible ways might United choose to account for the program in its published financial statements if it chooses to do so?


4.      How do you believe United should account for the program in its published financial statements? Explain and support your chosen method and why you rejected other approaches. Show by some means (such as journal entries, T accounts, or pro forma statements) how your chosen method would be applied and all of the accounts that would be affected by the accounting you believe to be best.

5.      If you were CFO of United, what would you do?