Accounting for Membership Fees and Rewards Program

BJs Wholesale Club Holdings, Inc., provides the following description of its revenue recognition policies for membership fees and its reward program.

Performance Obligations

The Company identifies each distinct performance obligation to transfer goods (or bundle of goods) or services. The Company recognizes revenue as it satisfies a performance obligation by transferring control of the goods or services to the customer . . .

Merchandise salesThe Company recognizes sale of merchandise at clubs and gas stations when the customer takes possession of the goods and tenders payment . . .

BJs Perks Rewards and My BJs Perks programsThe Companys BJs Perks Rewards membership program allows participating members to earn 2% cash back, up to a maximum of $500 per year, on qualified purchases made at BJs. The Company also offers a co-branded credit card program, the My BJs Perks program, which allows My BJs Perks Mastercard credit card holders to earn up to 5% cash back on eligible purchases made at BJs up to 2% cash back on purchases made with the card outside of BJs. Cash back is in the form of electronic awards issued in $20 increments that may be used online or in-club at the register and expire six months from the date issued.

Earned rewards may be redeemed on future purchases made at the Company. The Company recognizes revenue for earned rewards when customers redeem such rewards as part of a purchase at one of the Companys clubs or the Companys website. The Company accounts for these transactions as multiple element arrangements and allocates the transaction price to separate performance obligations using their relative fair values. The Company includes the fair value of award dollars earned in deferred revenue at the time the award dollars are earned . . .

MembershipThe Company charges a membership fee to its customers. That fee allows customers to shop in the Companys clubs, shop on the Companys website, and purchase gasoline at the Companys gas stations for the duration of the membership, which is generally 12 months. Because the Company has the obligation to provide access to its clubs, website, and gas stations for the duration of the membership term, the Company recognizes membership fees on a straight-line basis over the life of the membership . . .

The following data were extracted from income statement, balance sheet, and disclosure notes of BJs 10-K annual report for 2020:

	Twenty-Six Weeks
($ millions)	Ended February 1, 2020
Net sales	$30,934
Membership fee income	725
Total revenues	$31,658

	February 1, 2020	February 2, 2019
Deferred revenuemembership fees	$345.6	$322.6

Prepare journal entries to record (1) membership fees collected in cash in the first half of fiscal year 2020 and (2) membership fee revenue recognized over that period.

	Account	Debit	Credit
	Allowance for doubtful accountsBad debts expenseCashDeferred membership feesMembership fee revenue		Answer
	Allowance for doubtful accountsBad debts expenseCashDeferred membership feesMembership fee revenue		Answer
	To record membership fees collected.
	Allowance for doubtful accountsBad debts expenseCashDeferred membership feesMembership fee revenue		Answer
	Allowance for doubtful accountsBad debts expenseCashDeferred membership feesMembership fee revenue		Answer
	To record membership fee revenue recognized.