sam’s Club charges all customers a non-refundable annual membership fee of $25 d
ID: 2435030 • Letter: S
Question
sam’s Club charges all customers a non-refundable annual membership fee of $25 dollars. The fee gets new customers a membership card and allows them access to the store. sam’s sells its products at a discount, but its sales prices are sufficient to cover its operating costs. sam’s Club collects $350,000 in membership fees at the beginning of every month over Year 1.The CEO wants to recognize the membership as revenue when collected. His view is the membership fee is a separate service that gives customers access to the store. The CFO disagrees. She thinks the customer is ultimately interested in buying discounted goods and that happens over the membership term as goods are purchased.
Provide the journal entries related to the membership fee for the first three months in Year 1 under the CEO’s approach and CFO's approach.
Explanation / Answer
Under CEO’s approach For January Cash $350,000 Membership revenue $350,000 (To record receipt of Membership revenue for the month January) For February Cash $350,000 Membership revenue $350,000 (To record receipt of Membership revenue for the month February) For March Cash $350,000 Membership revenue $350,000 (To record receipt of Membership revenue for the month March) Under CFO’s approach For January Cash $350,000 Memebership fee revenue $29,167 Unearned Memebership revenue $320,833 (To record receipt of Memebership fee revenue for the month January) For February Cash $350,000 Memebership fee revenue $29,167 Unearned Memebership revenue $320,833 (To record receipt of Memebership fee revenue for the month February) Unearned Memebership service revenue $29,167 Memebership fee revenue $29,167 (To record transfer revenue earned from January customers) For March Cash $350,000 Memebership fee revenue $29,167 Unearned Memebership revenue $320,833 (To record receipt of Memebership fee revenue for the month March) Unearned Memebership service revenue $58,333 Memebership fee revenue $58,333 (To record transfer revenue earned from January and February customers)
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