9. An airline received $1,500 cash in September for a round-trip ticket (Denver–Hawaii–Denver) with flights in October and November. When should the airline recognize revenue?
Answer: D
The airline should recognize revenue in October and November.
Revenue should be recognized when it is earned, which in this case occurs when the flights take place in October and November.
A) In September, October, and November
This option is incorrect because revenue recognition must align with the delivery of services. The airline received cash in September, but the service of flying the passengers does not occur until October and November.
B) Only in November
Recognizing revenue only in November is incorrect as it ignores the service provided in October. Since the round-trip ticket includes flights in both months, revenue must be recognized in both.
C) Only in September
This option is incorrect because it suggests that the airline recognizes revenue at the time of cash receipt. However, revenue recognition should be based on when the service is performed, not when payment is received.
D) In October and November
This is the correct choice as revenue should be recognized in accordance with the timing of the flights, which are the services being provided in those months.
Conclusion
Recognizing revenue in October and November aligns with the principle of revenue recognition, which dictates that income is recorded when earned, specifically when the airline provides the flight services. Options A, B, and C fail to adhere to this principle, as they either recognize revenue too early or too late, disregarding the actual timing of service delivery.