Assuming all other revenue recognition criteria are met (other than the issues raised with respect to the acceptance provision), when should Company A recognize revenue on this transaction?
Response: Upon delivery, Company A has completed the earnings process and met the delivery criterion with respect to the equipment because it has demonstrated that the equipment delivered to the customer meets the requirements of the customer’s order. In addition, Company B’s obligation to pay the fee is not contingent upon completion of installation. Therefore, Company A should recognize the revenue allocable to the equipment, $19,500,000, as revenue upon delivery. The staff believes that the remaining $500,000 of the arrangement fee should be recognized when installation is performed. Alternatively, if Company A’s policy is to defer all revenue until installation is complete, recognition of the $20,000,000 fee upon completion of installation would be appropriate. Company A’s policy should be appropriately disclosed and consistently applied.
