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Dover Books, Inc. is a publicly held chain of 40 bookstores located throughout Florida, Georgia, and South Carolina. Dover specializes in childrens book and carries
Dover Books, Inc. is a publicly held chain of 40 bookstores located throughout Florida, Georgia, and South Carolina. Dover specializes in childrens book and carries a complete line of best-selling titles. Dover has expanded at the rate of five new stores during each of the past three years and is planning on opening twelve new stores in the coming year. Gross revenues during the past year were approximately $60 million, and net earnings were less than $1 million. Dover is concerned about its ability to finance the opening of future retail outlets and has pursued a secondary public offering with its investment banker. The investment banker is of the opinion that Dover will need to report higher earnings in order to receive a favorable stock market price from the public offering. To supplement revenues and increase unit sales, Dover is planning to institute a chainwide membership program. The nonrefundable membership fee will cost $15 annually and entitle members to a 10 percent discount off the retail price of any book purchases. The membership also will entitle members to additional special discounts on selected titles. Each member will receive a membership identification card with an identification number and expiration date embossed on it. Based on a research study conducted by Dovers marketing department, 80,000 to 100,000 memberships are projected to be sold within the next 12 months. The incremental costs of promoting the memberships will be insignificant. Dover is planning on recognizing the membership fees as revenue when received. Dovers position is that since the fee is nonrefundable, it is earned on receipt. Hint: You might want to address all of the alternatives for recognizing revenue from the membership fees that are available to Dover before you attempt to make a judgment/decision. You should consider all the possibilities and outcomes. The product for this case will be a recommendation with respect to recognizing revenue from membership fees. Be sure you have a recommendation ready! Also, be sure you can address why your recommendation is better or more appropriate than the others you identified
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