3c.

The US GAAP is more consistent with the CFO’s approach to defer revenue recognition upon receiving
the membership fees because the vendor activities associated with the up-front fee “will rarely provide
value to the customer on a standalone basis” (SAB  TOPIC 13.A,  paragraph 3.f,  sequence 168). “The fact
that the registrants do not sell the initial rights, products, or services separately” implies that “the
earnings process is completed by performing under the terms of the arrangements, not simply by
originating a revenue-generating arrangement” (SAB  TOPIC 13.A,  paragraph 3.f Q1 Q Response, 
sequence 171). Additionally, even if the annual membership fee was eligible for full refund at any time
during its term, revenue recognition of the fee upon receipt is inappropriate, for it raises an uncertainty
as to whether the “fee is fixed or determinable at the date of sale” (ASC 605-15-25-1).

4a.

Globobank’s receipt of $500,000 fee from Alexander Industries could be treated as a standalone basis
and recognized over the life of the loan as an adjustment of yield or, if the commitment expires
unexercised, recognized in income upon expiration of the commitment (ASC 310-20-35-3). Because the
revenue will only be recognized once there’s a probable indication that Alexander Industries will commit
to the purchase of loan, the information is highly representationally faithful, while the relevance is
comparatively lost. On the other hand, the Warner Time Cable’s initial receipt of hookup fees and Pam’s
Club’s non-refundable annual membership fee are bundle transactions that involve one unit of
accounting. Therefore, the revenue from these up-front fees will be recognized evenly and ratable over
the entire earning processes. For the latter two scenarios, the relevance of the accounting information is
heightened due to the timely estimation of revenue, but trading off the representational faithfulness
characteristic.

4b.

Yes, SFAC 5 and SFAC 6 provide general information which help determining the revenue recognition
procedures. The statements specified that revenue may be recognized when the earning process is, or is
substantially complete. Nonetheless, the two concept statements lack guidance on how to approach
exceptions to those general rules. Thus, we turn to the FASB codification to pinpoint the types of service
each up-front fee represents and the corresponding earning processes. Consequently, the synergism of
these financial statements allows us to best determine not necessarily whether or not certain fees will
be recognized as revenue, but more about the timing of the recognition.