19. [Revenue recognition for refundable fee payments and lay- away transactions] Wal-Mart Stores [WMT] operates member- ship-only,
Question:
19. [Revenue recognition for refundable fee payments and lay- away transactions] Wal-Mart Stores [WMT] operates member- ship-only, cash-and-carry Sam's Clubs. The Company states that its analysis of historical membership fee refunds shows de minimis refunds. In fiscal 2000, the Company changed its method of accounting for Sam's Club membership fee revenues both domestically and internationally, from recognition on re- ceipt to recording revenue ratably over the 12-month term of membership.
a. Describe the expected effect of the accounting change on WMT net income (i) In fiscal 2000 (ii) In following years
b. Evaluate whether the new method better reflects revenues earned by the company
c. Discuss whether Wal-Mart should record any reserves for membership fee refunds
Step by Step Answer:
The Analysis And Use Of Financial Statements
ISBN: 9780471375944
3rd Edition
Authors: Gerald I. White, Ashwinpaul C. Sondhi, Haim D. Fried