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¶ … Accounting Case Study
Legal Plan Services
What type of product is Legal Plan Services selling? Tangible or intangible? What type of benefits does the client receive for his membership?
The kind of products that Legal Plan Services is selling is legal representation for civil litigation. The way the company's approach works is to provide customers with access to some of the top law firms for purchasing a membership. The services are considered to be intangible because this is not something that can be physically held. The benefits that the client receives are the ability to consult with any one of the attorneys from affiliate firms for free. This involves select cases including: personal injury, tax, criminal and civil related issues. If the client goes beyond a certain amount of hours is when the membership will provide a 25% discount on the firm's hourly rate. ("Intangible")
What accounting concepts, objectives, and definitions should the company follow?
The company should follow more traditional accounting standards when reporting any kind of future sales and recording advanced commissions. In these situations, the sales representative is paid a commission in advance for sales they have closed. The problem is the monthly fee customers are charged has not been collected. This increases the risks, as someone may choose to no longer remain a client. When this happens, it means that there is a gap in the company's earnings and a loss from the advanced commissions paid to the sales force. If the company was able to change these objectives, their definition of profit margins will move away from the pro forma standard to generally accepted accounting principles (GAAP). ("Pro Forma," 2011)
When should Legal Plan Services recognize the various types of revenue? What are the rules of recognition...
accrued revenues). The rules of recognition include: revenues when the funds are collected. (Briner) The combination of these factors is important, because this will help to provide more stability to the firm's earnings.
When should Legal Plan Services recognize the various expenses? What are the rules of recognition that apply?
Expenses should be recognized the moment they are incurred. The rules of recognition that should apply include: expenses that are producing revenues along with those that will benefit the firm over the long and short-term. If this kind of approach can be utilized it will help the company to be able to more accurately account for liabilities. ("Generally Accepted Accounting Principles")
How should Legal Plan Services present and explain the information concerning this product in their financial statements?
The best way that Legal Plan Services should present information is to provide two different sets of numbers. One would be based on GAAP standards. While the other, is focusing on pro forma principles. The combination of the two would provide the most accurate information to everyone. This is the point that the various stakeholders can make an informed decision about the financial strength of the company.
Present the journal entries that Legal Plan Services would use to account for their product and the associated expenses.
The journal entries that Legal Plan Services should use to account for their products / associated expenses include: focusing on the liabilities, total revenues and the costs for accounting services. These different areas will help to improve the accuracy of the financial information that is provided.
Do the…
References
"Generally Accepted Accounting Principles." CPA Needed, 2011. Web. 3 Feb. 2012.
"Intangible." The Free Dictionary, 2012. Web. 3 Feb. 2012 <http://www.thefreedictionary.com/intangible>
"Pro Forma." Investopedia, 2012. Web. 3 Feb. 2012 <http://www.investopedia.com/terms/p/proforma.asp#axzz1lNKpbwOg>
Briner, Russell. "Revenue Recognition." CPA Journal, 2001. Web. 3 Feb. 2012. <http://www.nysscpa.org/cpajournal/2001/0300/dept/d035001.htm>
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