Reference no: EM133377717
Case: Late in November, Sky Airlines, a new regional carrier, inaugurated its own frequent flier program to compete more effectively with established carriers. To differentiate its program from those of its competitors, Sky adopted a plan based on the number of flights rather than miles flown. Named the "Fly-Five-Then-Free" program, it offers a free, unrestricted round-trip ticket for every five paid round-trip flights taken.
With load factors ranging between 60 and 65 percent, Sky has sufficient excess capacity to accommodate the free rides. Seats are generally available even on popular flights because of no-shows, since most business travelers use Sky's full-fare tickets, which impose no penalty for missing the flight. Thus, management thinks fare-paying passengers will rarely if ever have to be turned away to accommodate the free rides. Sky therefore projects program costs to consist mainly of additional on-board meals ($3 each) and ticket writing ($2 each).
The program also is designed to entice local companies to have their employees fly Sky on business trips. Under its "Corporate Partners" program, Sky credits member companies (rather than the traveler) for a free round trip for every five business round trips taken.
Home Inc. immediately signed up for Sky's Corporate Partners plan and directed that Sky be used for all business trips to cities it serves. Willard Finster, the company's controller, anticipates each free trip earned will save Home about $300. By year-end, Home has accrued 10 free trips.
Both Sky and Home maintain their accounting records on a calendar-year basis.
Question 1. How should Home report the 10 free trips it is carrying over to the next calendar year?
Question 2. How should Sky report the 10 free trips that Home has earned?
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