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Submitted By cdowell
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In the Lighthouse revenue recognition case, there are two alternatives. The first alternative is that the device and service is a single unit of accounting and both should be recognized as the service is provided. The second alternative is that the devices and services represent two separate earnings processes which need to be recognized separately. Alternative 1. According to FASB 605-25-25-5, there are three criteria that need to be met in order for an arrangement with multiple deliverables to be considered separate accounting units. First, the items need to have standalone value to the customer. Second, there needs to be objective and reliable evidence of the fair value of the undelivered items. Third, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item or items is considered probable and substantially in the control of the vendor. According to these terms, the device and service are not separate because they do not have standalone value since the devices are made to be used exclusively with the Lighthouse services and there are no other competitors making devices that work with the Lighthouse services. Therefore the device should be combined with the service and recognized over the service period. Alternative 2. According to FASB 605-10-25-3, revenue should ordinarily be accounted for at the time a transaction is completed, with appropriate provision for uncollectible accounts. Paragraph 605-10-25-1(a) states that revenue and gains generally are not recognized until being realized or realizable and until earned. Accordingly, unless the circumstances are such that the collection of the sale price is not reasonably assured, the installment method of recognizing revenue is not acceptable. The case states that customers sign two separate contracts, one governing the…...

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