Revenue Recognition—Membership Fees Midwest Health Club offers one-year memberships.Membership fees...

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Revenue Recognition—Membership Fees Midwest Health Club offers one-year memberships.
Membership fees are due in full at the beginning of the individual membership period. As an incentive to new customers, MHC advertised that any customers not satisfied for any reason could receive a refund of the remaining portion of unused membership fees. As a result of this policy, Richard Nies, corporate controller, recognized revenue ratably over the life of the membership. MHC is in the process of preparing its year-end financial statements. Rachel Avery, MHC’s treasurer, is concerned about the company’s lackluster performance this year. She reviews the financial statements Nies prepared and tells Nies to recognize membership revenue when the fees are received. Answer the following questions.
(a) What are the ethical issues involved?
(b) What should Nies do?

David · Accepted Answer

Ethical issues involved are as follows:- 
1. It is not in accordance with revenue recognizing principle that revenue is to be recognized 
on cash basis. Recognizing revenue as and when it is received is against the revenue 
recognizing principle applicable in case of mutual concerns.

Revenue Recognition—Membership Fees Midwest Health Club offers one-year memberships. Membership fees are due in full at the beginning of the individual membership period. As an incentive to new...

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