Marvel System Services Provides Its Customers with Computer-Based Services Over

Marvel System Services provides its customers with computer-based services over an extended period. Customers are required to prepay the entire fee for the extended service. Marvel performs initial setup activities to enter a customer into its system. The initial setup allows the customer to receive automated services from Marvel from that point forward in the service agreement.
The management of Marvel plans to recognize the revenue over the life of the service contract, but plans to recognize a disproportionate amount of revenue at the beginning of the contract as a result of the completion of the setup activities and the cost incurred in connection with the completion of the setup activities.
Required:
Do you agree with the proposal by the management of Marvel regarding revenue recognition related to the setup activities? How should revenue be recognized for an agreement such as this?

Correct Answer:

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EITF No. 00-21, "Revenue Arrangements wi...

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