Pre-Paid legal Services, Inc.

Pre-Paid Legal Services (PPLS) marketed its memberships through a multi-level program that encouraged buyers to become salespeople. Members that sought to become sales associates paid the company a fee of $65 to cover the cost of training materials, training meetings, and home office support services. Registered sales associates sold the company's services to their friends and business associates. The most successful even recruited their sales force. Sales associates were compensated on a commission basis. Prior to 1995, …

…the salesperson will receive $114 plus interest. However, by reserving $4 and $3.7 million in 1998 and 1997 it would appear they understood much of the commissions will never be collected. My recommendation to the company would be to recognize the commission immediately as it does not have a huge effect to the bottom line and would calm the concerns of the marketplace. Reference: Palepu, K., Healy, P., and Bernard, V. (2004). Business Analysis and Valuation Using Financial Statements. Ohio: Thomson-Southwestern.