Velocity Cellular

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1. Revenue Recognition for Multiple-Element Arrangements– The Case of Velocity Cellular (15 points)

a. (5 Points)Use Accounting Standards Codification (ASC) 605-25: Revenue Recognition: Multiple Element Arrangements and Accounting Standards Updates (ASU) to determine the appropriate method to recognize revenue for the Power Starterpack. State your reasons and relevant ASC and ASU to support one of the following two alternative treatments:

1) The activation card is not a separate deliverable and not a separate unit of accounting in accordance with ASC 605-25.

2) The activation card is a separate deliverable and a separate unit of accounting in accordance with ASC 605-25.

You should use the criteria listed in ASC 605-25-25-5 (EITF 00-21) when answering the above question. b. (5 points) Assuming that the activation card is a separate unit of accounting, and the selling prices of the activation card and the prepaid voucher are $170 and $50, respectively, how should the $200 nonrefundable fee for the Power Starterpack be allocated between the activation card and the prepaid voucher? Supporting references for your answer are required.

c. (5 points) What is the appropriate method for recognizing the nonrefundable up-front fees such as the service activation fee charged by a cellular phone company? You should use ASC 605-10-S99-1 or 3.f (Nonrefundable up-front fees) in Topic 13.A (Selected Revenue Recognition Issues) of Staff Accounting Bulletin (available on the SEC’s website at www.sec.gov) as your reference. 2. Revenue Recognition for Software (15 points)

a. (10 points) The sales price of $300,000 charged by a software vender to a customer includes the following: the software (no addition development or modification needed), the installation of the software, and a one-year technical support. If the software…...

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