Ch 3 Discussion

Group 6

FS3-1

We think that WestJet will require adjustments on the following accounts:

* Prepaid expenses and Deposits – cash is paid before expense is recognized

* Property and Equipment - amortization /depreciation costs

* Other Assets – Likely but need more information

* Accounts Payable and Accrued Liabilities – Expenses recognized before cash is paid. Are there situations where accounts payable are adjustable and situations where they are not adjustable? Does it depend on what accounts payable includes?(Insurance, salaries)

* Advanced ticket sales – Expense is recognized before revenue is recognized. Although it is an expense it is not adjustable as a yearend item. It is adjustable as the flights take off/expired or are they only adjusted during their reporting periods? The answer will depend on these situations.

* Guest Credits are adjustable- The notes specify that the guest credits are adjusted as they are used or expired not just for the recording periods.

* Long Term Debt – Accrued Liability which are shown in the current portion line in the statement for long term debt. (This current portion is the adjustment)

* Obligations of Capital Lease – Accrued Liability which is shown in the current portion of obligations for capital lease. (This current portion is the adjustment)

* Other Liabilities – Likely but need more information

* Future income tax – Expense recognized before cash is paid

FS3-2

a) Note 1 c indicates that WestJet recognizes the revenue “when air transportation is provided”, thus the tickets sold are included as advanced ticket sales.

b) Advance Ticket sales indicates future revenue or sales for the company

c) Advanced ticket sales would be reported as a liability because the company does not recognize the revenue until the air transportation is provided. Customers may cancel their flight bookings prior to the time for which the ticket is redeemed, so WestJet would be obligated...