Question

Campus Cellular provides cell phones and 1 year of cell service to students for an upfront, nonrefundable fee of $300 and a usage fee of $5 per month. Students may renew the service for each year they are on campus (on average, students renew their service one time). What amount of revenue should Campus Cellular recognize in the first year of the contract?

Answer 1

Campus Cellular should recognize $360 in revenue in the first year of the contract.

Step-by-step explanation:

To calculate the revenue that Campus Cellular should recognize in the first year of the contract, we need to consider the upfront fee and the usage fee. The upfront fee is $300, which is nonrefundable. As for the usage fee, it is $5 per month. Since the contract lasts for 1 year, the total usage fee for the year is $5 x 12 = $60. Therefore, the total revenue in the first year of the contract is $300 + $60 = $360.

Campus Cellular should recognize $360 in revenue in the first year of the contract, considering the upfront fee of $300 and the usage fee of $5 per month for 12 months.