Question

15-34 Customer and Airline Suppose Macy's decided to hold a managers' meeting in Honolulu in February. To take advantage of special fares, Macy's purchased airline tickets in advance from Delta Airlines at a total cost of $55,000. Macy's acquired the tickets on December 1 for cash. Using the balance-sheet-equation format, analyze the impact of the December payment and the February travel on the financial position of both Macy's and Delta.

Answer 1

On December 1

The tickets were booked in advance. Hence, the prepaid travel, being an asset is debited and cash being an asset decreases, is credited.

The journal entry is
Prepaid Travel -Dr $55,000
To Cash $55,000
(To record travel expenses booked in advance)

On February

On the date of travel, the travel expenses actually incur. Hence, the travel expense is debited and prepaid travel is credited.

The Journal entry is
Travel expense -Dr $55,000
To Prepaid Travel $55,000
(To record travel expenses incurred)