Case 7.2 Revenue Recognition Associated with Frequent Flier Miles Continental Airlines: Revenue is deferred and recognized when transportation is provided •Revenue is realized, and earned. The carrier has performed its duty, the service has been preformed. The amount of the claim is known AMR (American): Revenue is deferred and recognized over the period approximating mileage credits are used •Because there is no actual way of knowing when/if mileage will be used, it is not appropriate. Revenue may have not been earned at time of recognition. UAL (United): Revenue is recognized when the credits are sold •Revenue has been realized, but not yet earned as the service has not been provided Delta Airlines: Revenue is recognized as operating revenue at time of sale •This is not part of operating revenue as it is not the primary line of business. •At time of sale, revenue is realized but has not been earned yet US Airways Group: Revenue is recognized as other operating revenue when credits are sold •It is better to place this revenue under other operating revenues •When credit is sold, revenue has been realized, but not yet earned.
Case 7.3 Restatement of Xerox Revenue
c.)$ Change% Change
Total Costs and Expenses40.0%
d.) The revisions were made on June 28, 2002. According to the stock chart, trading activity increased with a higher volume end of June/beginning of July. The stock price dropped substantially also. This shows investors reacted negatively to the news. As for performance, the years 1997-9 were negatively impacted with lower revenues and lower earnings. However, for 2000 and 2001, revenue was increased as were earnings and the net...