Assignment: Revenue Recognition
Topic: Gaines Gym Inc. (GG), offers annual memberships. Members are entitled to use of the facilities during all business hours. Annual membership fees are due in ?ill right away - at the beginning of the membership period. GG offers customers a full refund for any unused period if for any reason a customer is not satis?ed. As a result of this policy, GG recognized revenue ratably over the life of the membership rather than when the dues were received ?'om the customer. Gaines Gym Inc.'s CEO, Ahmed Chowdhury, is not satis?ed with the company's performance this year and has requested that you, the Controller of GG, recognize the revenue when received rather than over the membership period.
Task
Write a memo to Ahmed Chowdhury, the CEO of Gaines Gym Inc. addressing the issues identi?ed below. This memo should be short and to the point (one page, single spaced). Font should not be larger than 12.
You will also be graded on how you organize the information. There are many options with how to bundle the "answers" you give; choose the option that would make the memo easiest to read, interpret, and implement by the user. There is no one right way, so it is perfectly ?ne for students to take different approaches to presenting the information.
A. Discuss the factors to be considered in determining when revenue should be recognized per Accounting Standards Update No. 2014-09, Revenue from Contract with Customers. You can ?nd a lot of good information in chapter 18 of your textbook. You may conduct additional research, if necessary, but it is not required. If needed, be sure to cite your sources appropriately.
B. Apply the above guidance to Gaines Gym, Inc's facts.
C. Explain to CEO Chowdhury what your decision is with respect to GG'S accounting treatment concerning membership revenues. Be sure to explicitly explain the criteria under GAAP that justi?es your position.
D. If there are any potential ethical issues in this situation, please kindly explain these to the CEO. The opening to chapter 18 is a great place to read up on ethical issues related to revenue recognition.