Beth Rader purchased North Shore Health Club in June 2009. Beth wanted to increase the size of
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Beth prepared her income statement for 2009 and included $1,250,000 ($5,000 3 250 members) as revenue because the Club had collected the entire amount in cash.
Beth's accountant objected to the inclusion of the entire $1,250,000. The accountant argued that the $1,250,000 should be recognized as revenue as the Club provides services for these members during the membership period. Beth countered with a quotation from generally accepted accounting principles:
Profit is deemed to be realized when a sale in the ordinary course of business is effected unless the circumstances are such that collection of the sale price is not reasonably assured.
Beth notes that memberships have been sold and the collection of the selling price has occurred. Therefore, she argues that all $1,250,000 is revenue in 2009.
Required:
1. Write a short statement supporting either Beth or the accountant in this dispute.
2. Would your answer change if the $5,000 fee were nonrefundable? Why or why not?
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Related Book For
Cornerstones of Financial and Managerial Accounting
ISBN: 978-0324787351
1st Edition
Authors: Rich Jones, Mowen, Hansen, Heitger
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