To attract new members, SFL started a new lifetime fitness membership. A member pays a non-refundable initiation
Question:
To attract new members, SFL started a new lifetime fitness membership. A member pays a non-refundable initiation fee of $3,000 and subsequent monthly payments of $30 for as long as they continue to be a member. The membership can be canceled at any time by the member, however, the initiation fee is not refunded. Based on industry studies, approximately 50% of the members stop coming to the gym after 1st year, and the remaining 50% stop coming after 2 years. Revenue for all memberships is recognized when received.
This new plan has been quite successful with 1,150 memberships sold this year; members felt the lifetime plan was more cost-effective because the regular membership required an annual fee of $1,000 and $30/month. Shareholders will receive a special dividend this year of 5% because of the increased net income.
Instructions
- Assume the company follows ASPE. Prepare an analysis using the CPA Way as illustrated in class: Provide issue, a GAAP supported/ case-specific analysis, recommendation, and correcting JE, if any, that is needed. Show all calculations in a proper format.
- Assume the company follows IFRS. Prepare an analysis using the CPA Way as illustrated in class: Provide a GAAP supported/ case specific analysis, recommendation, and correcting JE, if any, that is needed. Show all calculations in proper format.
- Assuming IFRS is used, how would your response under B change if the member was given 2 years to pay the $3,000 and a one-time comprehensive fitness assessment was included in the initiation fee? You DO NOT need to re-do the analysis as you provided in B; simply explain which step(s) in the 5-step process would be affected and why.
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne