A company that usually sells satellite TV equipment for $50 and two years of satellite TV service for $450 has a special, time-limited offer in which it sells the equipment for $300 and gives the two years of satellite service for free. If the company sells one of these packages on July 1, how much revenue should the company recognize on July 1 when it delivers the equipment and receives the full price in cash?

Question

23-04-2020
Business

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A company that usually sells satellite TV equipment for $50 and two years of satellite TV service for $450 has a special, time-limited offer in which it sells the equipment for $300 and gives the two years of satellite service for free. If the company sells one of these packages on July 1, how much revenue should the company recognize on July 1 when it delivers the equipment and receives the full price in cash?

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roundadworthy roundadworthy · Answer 1 · 2020-04-26T10:47:37+02:00

Answer:

The company should recognize on July 1st $ 50

Explanation:

1. Let's review the information given to us to answer the question correctly:

Standard price of satellite TV equipment = $ 50

Standard price of 2-year of satellite TV service = $ 450

Time-limited offer for equipment and two years of satellite service = $ 300

Date of sale : July 1st

2. How much revenue should the company recognize on July 1 when it delivers the equipment and receives the full price in cash?

We can use the following formula to find out the answer, this way:

Non-delivered services = Time-limited offer - Standard price of satellite TV equipment

Non-delivered services = 300 - 50 = 250

Revenue recognized or earned = Time-limited offer - Non-delivered services for 2 years

Revenue recognized or earned = 300 - 250

Revenue recognized or earned = $ 50

That is the amount to recognize on July 1st, that is actually the standard price of satellite TV equipment. The $ 250 remaining are deferred revenue, that will be accrued on a monthly basis.