S&H Green Stamps
S&H Green Stamps
In the 1950 's and 1960 's supermarkets gave customers "green stamps" for every dollar of purchases at the grocery store. These stamps could then be redeemed by the customers for merchandise at an S&H warehouse.
Basically, the company (Sperry and Hutchinson) provided the stamps to the grocers who didn 't have to pay for the stamps until the month after they were given out to customers. Unused stamps could be returned to the supplier. The customer would collect the stamps in a book until enough stamps had accumulated. The customer would then visit S&H’s warehouse and redeem merchandise (e.g.. a TV, a basketball, a set of kitchen towels) for a specified number of filled stamp books.
When should S&H recognize the revenue and the expense? How much expense should be recognized?
S&H Green Stamps – Suggested Solution
Revenue recognition:
1. Revenue recognition normally occurs at the time services are rendered or when goods are sold and delivered. The conditions for revenue recognition are:
a. an exchange transaction
b. And the earnings process being complete.
2. The USA Securities and Exchange Commission has additional guidance, noting that revenue recognition would normally be appropriate only when there is persuasive evidence of an arrangement, delivery has occurred (or services rendered), the seller’s price is fixed or determinable, and collectability is reasonably assured.
3. S&H collect the cash latest at the end of the month, far in advance delivering the goods to the customer.
4. Some of the stamps will never redeem.
5. The revenues could be recognized in three different ways:
a. All revenue could be recognized when the stamps are sold - the sale basis (beginning of the month), or at the end of the month for the cash receiving.
b. The sold stamps could be treated as an advance for the merchandise that will be delivered later (unearned revenue), until stamps are exchanged for the merchandise.
c. Some revenue could be recognized at the
In the 1950 's and 1960 's supermarkets gave customers "green stamps" for every dollar of purchases at the grocery store. These stamps could then be redeemed by the customers for merchandise at an S&H warehouse.
Basically, the company (Sperry and Hutchinson) provided the stamps to the grocers who didn 't have to pay for the stamps until the month after they were given out to customers. Unused stamps could be returned to the supplier. The customer would collect the stamps in a book until enough stamps had accumulated. The customer would then visit S&H’s warehouse and redeem merchandise (e.g.. a TV, a basketball, a set of kitchen towels) for a specified number of filled stamp books.
When should S&H recognize the revenue and the expense? How much expense should be recognized?
S&H Green Stamps – Suggested Solution
Revenue recognition:
1. Revenue recognition normally occurs at the time services are rendered or when goods are sold and delivered. The conditions for revenue recognition are:
a. an exchange transaction
b. And the earnings process being complete.
2. The USA Securities and Exchange Commission has additional guidance, noting that revenue recognition would normally be appropriate only when there is persuasive evidence of an arrangement, delivery has occurred (or services rendered), the seller’s price is fixed or determinable, and collectability is reasonably assured.
3. S&H collect the cash latest at the end of the month, far in advance delivering the goods to the customer.
4. Some of the stamps will never redeem.
5. The revenues could be recognized in three different ways:
a. All revenue could be recognized when the stamps are sold - the sale basis (beginning of the month), or at the end of the month for the cash receiving.
b. The sold stamps could be treated as an advance for the merchandise that will be delivered later (unearned revenue), until stamps are exchanged for the merchandise.
c. Some revenue could be recognized at the