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Legal Plan Services, Inc Essay

1073 words - 5 pages

Acct 325
Legal Plan Services, Inc.

The company designs, underwrites, and markets legal services plans, called Memberships. The company sells their plans, in the course of a network of independent contractor sales associates, throughout the United States and in several Canadian provinces.
1. Legal Plan Services offers four types of Intangible product lines:
* The Family Plan
* Business Owners’ Legal Plan
* Law Officers’ Legal Plan
* Commercial Driver Legal Plan
The clients receive benefits under each plan that covers a certain number of hours of legal assistance. The services are limited; however, members receive legal services at a 25% discount from the ...view middle of the document...

The excess is than considered deferred revenue and is recognized as income. Second, recognize non-refundable enrollment fees during new sales. Third, when sales associates participate in the company training program; this is recognized as revenue when the training program is completed. SEC Staff Accounting Bulletin: No. 101 Revenue Recognition in Financial Statements, states that the non-refundable fees depend on the situation which the fee is collected. In the case, service transactions were involved in charging a nonrefundable initial fee with subsequent periodic payments for future products or services. The bulletin staff believes that “up-front fees, even if nonrefundable, are earned as the products and/or services are delivered and/or performed over the term of the arrangement or the expected period of performance and generally should be deferred and recognized systematically over the periods that the fees are earned.”
SAB 105-5-5
According to the Accounting Standards Codification, 83(b) of FASB Concepts Statement No.5, Recognition and Measurement in Financial Statements of Business Enterprises, revenue is not recognized until earned. That paragraph states that an “entity’s revenue-earning activities involve delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations, and revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues.”
ASC 605-10-25-1b
4. Legal Plan Services recognize the various expenses when accrued. One method pays and expenses commissions as the membership revenue is earned. In the second method, at the sales associate’s option, the associate can collect commissions in advance during membership renewal and associate performances. The commission payment that represents future revenues is recognized on the balance sheet as “Commission advance receivables.” When future membership fees are earned, the company reduces the commission receivables and recognized the commission expense. The company also charges the sales associate a fee on recoverable commissions using the prime interest rate x amount of the recoverable advanced commissions. This fee is recognized when collected from the sales associate in the FASB Statement of Financial Accounting Concepts No. 5, Paragraph 85 states that “expenses and losses are generally recognized when an entity’s economic benefits are used up in delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations or when previously recognized assets are...

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