91Ó°ÊÓ

GAAP guidelines help define different revenues for different situations, this process is known asrevenue recognition. When a significant event occurs, revenue is typically documented, and monetary amounts for the company are easily measured.

Thetotal cost of the transaction is $420. In that instance, Campus Cellular is offering a service without charging a price in the second year. As a result, the upfront price should be recorded twice as revenue. As a result, in both year 1 and year 2, Campus Cellular acknowledges revenue of $210.

Working notes:

Non-refundable fee = $300

Usage fee = $5 per month

$\begin{array}{rcl}\mathrm{Total}\mathrm{cost}\mathrm{of}\mathrm{transaction}& =& \mathrm{Nonrefundable}\mathrm{fee}+\left(\mathrm{Usage}\mathrm{fee}×24\mathrm{months}\right)\\ & =& \$300+\left(\$5×24\right)\\ & =& \$300+\$120\\ & =& \$420\\ & & \\ \mathrm{Revenue}\mathrm{recognized}\mathrm{in}\mathrm{first}\mathrm{year}& =& \frac{\mathrm{Total}\mathrm{cost}\mathrm{of}\mathrm{transaction}}{2}\\ & =& \frac{\$420}{2}\\ & =& \$210\end{array}$