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Barrios Communications is a provider of satellite television services. It will install a satellite dish free of charge for any customer that agrees to a one-year service contract at a price of $50 per month. Installation costs Barrios $150. Customers typically remain with Barrios for much longer than the one year required, an average of 10 years (i.e., 9 years beyond their contractual obligation). Barrios enters into a contract under the terms described above on January 1, 20X1.
Required:1. What amount of revenue should Barrios record related to the contract in 20X1?2. What amount of expense related to the contract should Barrios record related to the contract in 20X1?

Respuesta :

Parrain

Answer:

  1. $600
  2. $15

Explanation:

1. The revenue for the first year will be the One year contract price

= 50 * 12 months

= $600

2. Customers typically remain with Barrios for an average of 10 years so assuming this stays the same, the expense related to the contract of $150 can be capitalized over those 10 years.

= 150/10

= $15

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