Midwest health club (MHC) offers 1-year memberships. Membership fees are due in full at the beginning of the individual membership period. As an incentive to new customers, MHC advertidsed taht any customers not satisfied for any reason could receive a refund of the remaining portion of unused membership fees. As a result of this policy, Richard Nies, corporate controller, recognize revenue ratably over the life of the membership. MHC is in the process of preparing its year-end financial statements. Rachel Avery, MHC\'s treasurer, is concerned about the company\'s lackluster performance this year. She reviews the financial statements Nies prepared and tells Nies to recognize membership revenue when the fees are received. a. What are the ethical issues involved? b. What should Nies do? Solution a) When a company reports their finances with reports or statements, it must be handled with integrity and honesty. Nies’s position represents the General Accepted Accounting Practices. The financial statements must be reported and presented fairly. Avery’s way of handling the financial statement is not being presented accordingly and fairly. There are many investors and creditors who rely on such statements will be mislead and lied to. b) Hack should make sure that the statements are presented fairly and accordance with GAAP. Nies should be prepared to find alternative means if Avery doesn’t accept Nies’s position. Nies should seek people in higher positions at Midwest and found out what could be done. .

1. Midwest health club (MHC) offers 1-year memberships. Membership fees are due in full at the
beginning of the individual membership period. As an incentive to new customers, MHC
advertidsed taht any customers not satisfied for any reason could receive a refund of the
remaining portion of unused membership fees. As a result of this policy, Richard Nies, corporate
controller, recognize revenue ratably over the life of the membership. MHC is in the process of
preparing its year-end financial statements. Rachel Avery, MHC's treasurer, is concerned about
the company's lackluster performance this year. She reviews the financial statements Nies
prepared and tells Nies to recognize membership revenue when the fees are received. a. What are
the ethical issues involved? b. What should Nies do?
Solution
a) When a company reports their finances with reports or statements, it must be handled with
integrity and honesty. Nies’s position represents the General Accepted Accounting Practices.
The financial statements must be reported and presented fairly. Avery’s way of handling the
financial statement is not being presented accordingly and fairly. There are many investors and
creditors who rely on such statements will be mislead and lied to.
b) Hack should make sure that the statements are presented fairly and accordance with GAAP.
Nies should be prepared to find alternative means if Avery doesn’t accept Nies’s
position. Nies should seek people in higher positions at Midwest and found out what could be
done.