Joan Holtz (a)

From Case 5-3, I chose number 3, Cruise. Raymond’s, a travel agency, chartered a cruise ship for two weeks beginning January 23, 2007, for $200,000. In return, the ship’s owner agreed to pay all costs of the cruise. In 2006, Raymond’s sold all available space on the ship for $260,000. It incurred $40,000 in selling and other costs in doing so. All the $260,000 was received in cash from passengers in 2006. Raymond’s paid $50,000 as an advance payment to the ship owner in 2006. How much, if any, of the $260,000 was revenue to Raymond’s in 2006? Why? Does the question of whether passengers were entitled to a refund in 2007 if they canceled their reservations make any difference in the answer? Why?

According to the U.S. Securities and Exchange Commission, over half of the financial fraud cases involve improper recognition of revenue (Anthony, Hawkins, & Merchant, 2007, p.111). Therefore, an entity should err on the side of caution when reporting revenue. In keeping with the conservatism and realization concept, revenue should be recognized when