CellMate, a cellular phone company, conducts 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 $250 if the customer cancels the contract. CellMate charges a one-time activation fee of $60 and a monthly fee of $42 for ongoing service. The monthly fee is the same regardless of whether a free phone is provided. The phone costs CellMate $105, and CellMate sells the phone separately for $125. CellMate is not required to refund any portion of the fees paid for any reason. The customer has no obligation to CellMate if phone service is not provided. CellMate is a profitable business and has no reason to believe that the two-year service requirement will not be met.
Required:
1. Are the phone and the phone service (airtime) separate deliverables under this agreement?
2. What is the amount of revenue to be recognized upon signing of the agreement and delivery of the phone to the customer?

Question

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The Answer of CellMate, a cellular phone company, conducts 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 $250 if the customer cancels the contract. CellMate charges a one-time activation fee of $60 and a monthly fee of $42 for ongoing service. The monthly fee is the same regardless of whether a free phone is provided. The phone costs CellMate $105, and CellMate sells the phone separately for $125. CellMate is not required to refund any portion of the fees paid for any reason. The customer has no obligation to CellMate if phone service is not provided. CellMate is a profitable business and has no reason to believe that the two-year service requirement will not be met.
Required:
1. Are the phone and the phone service (airtime) separate deliverables under this agreement?
2. What is the amount of revenue to be recognized upon signing of the agreement and delivery of the phone to the customer?

CellMate, a Cellular Phone Company, Conducts a Promotion in Which