When Is the Membership Fee Earned?
The Superb Health Studio has been operating for five years but is presently for sale. It has opened 50 salons in various cities in the United States. The normal pattern for a new opening is to advertise heavily and sell different types of memberships: 1 year, 3 year, and 5 year. For the initial membership fee, members may use the pool, exercise rooms, sauna, and other recreational facilities without charge. If special courses or programs are taken, additional fees are charged; however, members are granted certain privileges, and the fees are less than those charged to outsiders. In addition, $10 a month dues are charged to all members. Nonmembers may use the facilities; however, they must pay a substantial daily charge for services they receive. Your client, Dickson Inc., is considering purchasing the chain of health studios and asks you to give your opinion on its operations. You are provided with financial statements that show a growing revenue and income pattern over the 5 year period. The balance sheet shows that the physical facilities are apparently owned rather than leased. But you are aware that health studios, like all service institutions, have some challenging revenue recognition problems. What questions would you want answered in preparing your report for Dickson?