Analyzing Unearned Revenue Transactions and Multiple-Element Arrangements Telstra Corporation…
Analyzing Unearned Revenue Transactions and Multiple-Element Arrangements
Telstra Corporation Limited is an Australian telecommunications and media company that builds and provides land-based and mobile telecom services along with internet and pay television products. The company is Australia's largest 3G and 4G enabled mobile network covering 99.3% of the Australian population across more than 2.3 million square kilometres (888 thousand square miles). Excerpts from the company’s revenue recognition footnote follow.
a. When Telstra sells a smart phone to a new customer, the sales contract typically comprises three deliverables bundled for one price. What are the three deliverables?
b. Explain in layman's terms how Telstra records revenue from sales of bundled contracts.
c. Telstra sells a number of pre-paid mobile packages for voice, text, and data. Assume a customer pays $ l 00 in cash for a pre-paid plan and Telstra activates service immediately. Explain how and when Telstra recognizes the $ 100 as revenue.
cl. Assume that at the beginning of the fiscal year, a customer makes a volume purchase of 200 iPhones and signs a two-year contract with Telstra for a voice and data package for each phone. The total discounted sales price is $480 per phone and Telstra pays App le $640 for each iPhone. This contract includes free future software upgrades for two years. Because there is no reliable VSOE, Telstra estimates a BESP of $64 for the future software upgrades. Allocate the consideration received for the 200 units to each respective element in the arrangement, based on its relative selling price (the sale is on account).
e. Use the financial statement effects template to record the original sale in part d, above, and the accounting adjustment at the end of the first fiscal year after the sale.