Lan, an accounting major, and Pat, a marketing major, are watching a Matlock rerun on late-night TV. Of course, there is a murder, and the suspect wants to hire Matlock as the defense attorney. Matlock will take the case but requires an advance payment of $150,000. Pat remarks that Matlock has earned income of $150,000 without lifting a finger. Lan corrects Pat telling him that Matlock has not earned anything but instead Matlock has a $150,000 liability that would appear on his balance sheet. Pat asks, “How can that be?”

Required
Assuming you are Lan, explain to Pat why Matlock has a liability on his balance sheet. When would Matlock actually recognize the $150,000 of revenue on his income statement?