Assume that a company receives $600 cash from a customer as the initial sign-up fee for a service.In addition to the sign-up fee,the customer also is required to pay $25 per month for the service.The expected economic life of the service agreement is 50 months.The company providing the service could subcontract with a third party to provide the service for 100 months for $200,which is also the cost to the company of providing the service.
Current professional standards regarding revenue recognition would require that the sign-up fee be recognized over the 50 months the service is provided.Nonetheless,you have heard that the FASB is considering another approach to revenue recognition called the asset-and-liability approach.
Required:
Explain how this transaction would be accounted for under the FASB's asset-and-liability approach and evaluate this new approach.

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The Answer of Assume that a company receives $600 cash from a customer as the initial sign-up fee for a service.In addition to the sign-up fee,the customer also is required to pay $25 per month for the service.The expected economic life of the service agreement is 50 months.The company providing the service could subcontract with a third party to provide the service for 100 months for $200,which is also the cost to the company of providing the service.
Current professional standards regarding revenue recognition would require that the sign-up fee be recognized over the 50 months the service is provided.Nonetheless,you have heard that the FASB is considering another approach to revenue recognition called the asset-and-liability approach.
Required:
Explain how this transaction would be accounted for under the FASB's asset-and-liability approach and evaluate this new approach.

Assume That a Company Receives $600 Cash from a Customer