Question 4 Partially correct Mark 1.33 out of 2.00 Flag question Accounting for Membership Fees and Rewards Program BJ's 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 when (or as) it satisfies a performance obligation by transferring control of the goods or services to the customer. Merchandise sales-The Company recognizes sale of merchandise at clubs and gas stations at the point of sale when the customer takes possession of the goods and tenders payment. BJ's Perks Rewards-The Company has a customer loyalty program called the BJ's Perks Rewards Program for which the Company offers points based on dollars spent by the customer. The Company also has a co-branded credit card program which provides members additional reward dollars for certain purchases. The Company's BJ's Perks Rewards members earn 2% cash back, up to a maximum of $500 per year, on all qualified purchases made at BJ's. The Company's My BJ's Perks Mastercard holders earn 3% or 5% cash back on all qualified purchases made at BJ's and 1% or 2% cash back on purchases made with the card outside of BJ's. Cash back is in the form of electronic awards issued in $20 increments that may be used online or in-club at the register and expire six months from the date issued. Earned rewards may be redeemed on future purchases made at the Company. The Company recognizes revenue for earned rewards when customers redeem such rewards as part of a purchase at one of the Company's clubs or the Company's website. The Company accounts for these transactions as multiple element arrangements and allocates the transaction price to separate performance obligations using their relative fair values. The Company includes the fair value of reward dollars earned in deferred revenue at the time the reward dollars are earned. Membership-The Company charges a membership fee to its customers. That fee allows customers to shop in the Company's clubs, shop on the Company's website, and purchase gas at the Company's gas stations for the duration of the membership, which is 12 months. Because the Company has the obligation to provide access to its clubs, website, and gas stations for the duration of the membership term, the Company recognizes membership fees on a straight-line basis over the life of the membership. The following data were extracted from income statement, balance sheet, and footnotes of BJ's 10-Q report for the second quarter of 2018: ($ millions) Net sales Membership fee income Total revenues Twenty-six weeks ended August 4, 2018 $5,607.4 124.6 $5,732.0 Deferred revenue - membership fees August 4, 2018 January 28, 2018 $116.9 $113.6 Deferred revenue - membership fees Prepare journal entries to record (1) membership fees collected in cash in the first half of fiscal year 2018 and (2) membership fee revenue recognized over that period. Note: Enter answers in millions. Ref. Description Debit Credit (1) Cash = Deferred membership fees 156.3 X 0 0 156.3 X (2) Deferred membership fees 152.2 X Membership fee revenue 0 0 152.2 x