TIME-LICE BOOKS LTD. Time-Lice Books Ltd. (TLBL) is a well-established public company that publishes a wide variety of general interest nonfiction books. The company is incorporated under the Canada Business Corporations Act, and the heirs of Harold Lice, the firms founder, hold 30% of the shares. The heirs do not take any active interest in the affairs of the company, but rely on the advice of their professional financial advisor, Mr. Jin-Shan Dai, in voting their shares. The remaining 70% of the shares are widely distributed and are traded on the TSX. TLBL distributes about 25% of its books through retail booksellers (including on-line), but the bulk of the sales (75%) are made directly to customers by direct mail and Internet advertising. About half of the direct mail and Internet sales are for series of books, and the company has decided to review its accounting policy for this segment of the business. TLBL is also exploring the possibility of selling its books electronically for use on e-book readers. A book series is a set of books on a particular topic. Rather than publishing all of the books at once, the approach is to issue one book at a time, at two-tofour-month intervals. Topics of some series that have recently begun are Saving the Planet, Great Impressionist Artists, Time-Lice Guides to Home Maintenance, and Lives of Great Accountants (a particularly popular series). When TLBL decides to start a new series, the first step is to design an elaborate and expensive full-colour advertising brochure for the series. This brochure is then mailed to about two million homes in Canada, using TLBLs own mailing list plus purchased mailing lists. An electronic version of the brochure is also disseminated via the Internet. The first book of the series is offered free of charge to anyone who returns a postage-paid card or requests a copy via Internet. While the sales campaign is going on, TLBL contracts writers to prepare the text of the first book in the series, and begins design of the book. However, actual production of the book does not occur until the direct sales campaign has ended and the number of copies needed has been determined from the returned postal cards and Internet requests. The second book is produced about two months after the first has been mailed out, and it is sent to all those customers who received the first (free) volume. However, customers are then asked either to subscribe to the entire series at a fixed price or to return the second volume without charge. Company experience has been that, on average, 80% of the customers elect to subscribe and about 15% return the second book. The other 5% neither subscribe nor return the book, and TLBL takes no action against these subscribers except to send them a letter and to delete their names from its mailing lists. While 80% is the average subscription rate, the rate for specific series may vary anywhere from 70% to 85%. Customers who do subscribe have a choice of paying for the entire series all at once or paying for each book (at a higher per-unit price) as it is sent. Roughly half of the customers elect each alternative, although there has been a trend toward advance payment via credit card or PayPal. The advertising brochure and sales campaign is the largest single cost incurred. The writers of the books are under a fixed-fee contract with TLBL and do not receive royalties. The layout and design work on each volume is performed by TLBLs salaried designers. Although printing costs have been escalating sharply, the cost to print and bind each book has lately been about $5. The books are sold to customers at about $30 per copy. All customers may cancel their subscriptions at any time. The advance-payment subscribers must send a letter of cancellation, but few do so. The instalment subscribers may cancel simply by returning one of the volumes within 15 days of receipt, whereupon they are sent no more volumes in the series. At some point before the conclusion of the series, 20% to 30% of instalment subscribers cancel.

Instructions

Evaluate the revenue and expense recognition alternatives for TLBL for the book series.