Interpreting Revenue Recognition for Gift Cards Below are the footnotes to Barnes & Noble Inc.’s 2016 annual report and membership information obtained from its website.

The Barnes & Noble Member Program offers members greater discounts and other benefits for products and services, as well as exclusive offers and promotions via e-mail or direct mail for an annual fee of $25.00, which is non-refundable after the first 30 days. Revenue is recognized over the twelvemonth period based upon historical spending patterns for Barnes & Noble Members. The Barnes &

Noble Member Program entitles Members to the following benefits:

• 40% off the list price of the current hardcover Barnes & Noble Store Bestsellers.

• 10% off the marked Barnes & Noble sale price of other eligible items.

• Free Express Shipping.

• Periodic special promotions at Barnes & Noble Stores and at BN.com.

a. Explain in layman’s terms how Barnes & Noble accounts for the cash received for its membership program. When does Barnes & Noble record revenue from this program?

b. How does Barnes & Noble’s balance sheet reflect those membership fees?

c. Does the 40% discount affect Barnes & Noble’s income statement when membership fees are received?