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Accounting for Fitness Solutions

Congratulations! You just graduated with a business degree and accepted a new position with the investigative unit of the FBI's white-collar crimes division. You are a leader on a team of law enforcement investigators called to examine alleged accounting fraud at Fitness Solutions.

Fitness Solutions, headquartered in Dallas, Texas, is a publicly held company with two divisions; one division operates fitness clubs, and a second division distributes fitness equipment to retailers and directly to the public. This is Fitness Solutions' 6th year of business. Its product and service lines and target customer market continue to flourish. In July 2005 it became a public company by issuing shares of stock in the NASDAQ exchange.

Consider the types of transactions that might occur on a regular basis in each of Fitness Solutions two divisions: (1) fitness clubs and (2) Fitness Equipment Retail. How would the transactions for the two divisions differ? From the following list of transactions, decide in which division the transaction would most likely occur. What would most likely be the source document(s) for each transaction? Defend your answers.

Fitness Solutions sold 250 memberships to its fitness centers in November of 2006.
Fitness Solutions earned $400,000 in revenues from providing the services of a personal trainer.
Fitness Solutions reported $850,000 in sales from selling fitness equipment.
Fitness Solutions purchased $500,000 in fitness equipment that it plans to resell.
Fitness Solutions paid $2,500 for towel-laundering services for 2006.
Fitness Solutions paid its CEO $250,000 for 2006.
Fitness Solutions paid $1,500 for an advertisement campaign to sell new memberships.
Fitness Solutions reported $300,000 in Cost of Goods Sold for 2006.
Fitness Solutions paid $100,000 in sales salaries for 2006.
Fitness Solutions paid $1,500 in equipment repairs for 2006.

Solution Preview

Requirement 1
Regular transactions at the Fitness Club would include receipts membership fees and payments for fitness instructors' salaries.
Regular transactions at the Fitness Equipment Retail would include sales of fitness equipment and cost of goods sold.
The regular transactions would differ on the specific types of revenues and expenses recognized as a result of the different operations of the two divisions.

Requirement 2
Transaction Division Source Document Explanation
Fitness Solutions sold 250 memberships to its fitness centers in November of 2006. Fitness Club Membership form, sales receipt The Fitness Club provides services to its members and charges a fee for such services. A sales receipt is issued for every payment received by Fitness ...

Solution Summary

The solution examines accounting for Fitness solutions. The different types of transactions that might occur on a regular basis are examined.

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