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CellularCo runs a promotion in which new customers who sign a two-year contract receive a...

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Accounting

CellularCo runs a promotion in which new customers who sign a two-year contract receive a "free" phone. The contract requires the customer to pay a cancellation fee of $300 if the customer cancels the contract. There is a one-time "activation fee" of $50 and a monthly fee of $40 for the ongoing service. The same monthly fee is charged by CellularCo regardless of whether a "free" phone is provided. The phone costs CellularCo $100. Further, assume that CellularCo frequently sells the phone separately for $120. CellularCo is not required to refund any portion of the fees paid for any reason.

Question 1: How many performance obligations exist in this contract? _________ Explain your answer!

Question 2: What is the Transaction Price of this two-year Contract? Allocate the Transaction Price to performance obligations.

Question 3: Assume that Cellular sales 100 of such 2-year contracts on January 1, 2009. How much revenue Cellular can recognize:

On January 1, 2009: _________________

For January, 2009: _________________

For 2009: _________________

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