Velocity

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Velocity Cellular: Trueblood Case 09-1
Case Study: Velocity Cellular
Case Study: Velocity Cellular
Revenue Recognition in a Multiple-Element Arrangement
Velocity Cellular Services is planning the rollout of a new prepaid phone service called Power Starterpack. Using the current, relevant accounting guidance, determine and support the appropriate method for recognizing revenue for this new product.
Power Starterpack Details
Velocity Cellular sells the Power Starterpack for $200. The Power Starterpack consists of two elements: a new activation card and a prepaid voucher for $50 worth of airtime. The new activation card allows the subscriber’s cellular phone to function and gives the subscriber additional features not available with the old activation card. Activation cards can be purchased separately from Velocity. Identical activation cards can be purchased from other vendors. The $50 prepaid airtime voucher must be used within 360 days or the remaining value is forfeited. If there is no activity for seven consecutive months, the subscriber’s account is closed and the phone number is deactivated. No refunds are given and the subscriber has no general rights of return for the Power Starterpack.
Are the Deliverables Considered Separate Units of Accounting?
Velocity Cellular adopted ASU 2009-13, “Revenue Arrangements with Multiple Deliverables” in the current fiscal year. The Update amends the criteria in Subtopic 605-25 for separating revenue in multiple-deliverable arrangements. The amendments replace the use of the fair value of deliverables with the selling price of the deliverables. This change allows the financial statements to more accurately affect the nature of multiple-element arrangements [ (FASB Emerging Issues Task Force, 2009) ].
The first question to address is whether the multiple deliverables in the Power Starterpack are to be considered…...

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