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Case 04-7: Lighthouse

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Case 04-7: Lighthouse

I. Summary

The Lighthouse Company is dedicated to offer services to marine or shipping companies. Their services are based on the tracking and location of the boats of their clients. In order to offer the service, Lighthouse must install an equipment of tracking boats which will have a cost of sale of $10.000,00 dollars, no reimbursable and a tracking system with a monthly cost of sale of $300,00 dollars. This way their clients will continuously receive the data on the location and routes of their boats. The clients must accept this service by means of two contracts. One that stipulates the purchase of the tracking equipment and other that stipulates the monthly fee by the tracking service, usually with duration of a year.

Both contracts could have a discount, depending on the amount of services and equipment that is acquired. Lighthouse is the only producer of the tracking equipment and it does not have competitors in the present market compatible with its service. Another factor is that the clients could cancel their services at any time.

II. Issue

Several factors as services and sale of equipment based on GAAP, entrances of accounting, mercantile right are due to consider.

• How are due to recognize the sales and income of Lighthouse, like sale equipment or sale service?
• Is the tracking equipment independent of the service?
• Is due to consider the income of Lighthouse like a hybrid between equipment and service, like a single package?
• Which is the effect to have two contracts?

II. FSAB Applicable to Lighthouse Case.

At the moment there are several FASB (Financial Accounting Standard Board) ansd its ASC (Accounting Standard Codification) applicable to the presented situation. Also settle down some SEC (Staff Accounting Bulletin) and EITF (Emerging Issues Task Force) applicable to the controversy.

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