Question

Windsor Inc. sells prepaid telephone cards to customers. Windsor then pays the telecommunications company, TeleExpress, for the actual use of its telephone lines related to the prepaid telephone cards. Assume that Windsor sells $4,100 of prepaid cards in January 2020. It then pays TeleExpress based on usage, which turns out to be 50% in February, 30% in March, and 20% in April. The total payment by Windsor for TeleExpress lines over the three months is $2,000. Indicate how much income Telephone Sellers should recognize in January, February, March, and April

1. January income?
2. February income?
3. March income?
4. April income?

Answer 1

Revenues

January = $0

February $4,100 * 50% = $2,050

March $4,100 * 30% = $1,230

April $4,100 * 20% = $820

Expenses

January = $0

February $2,000 * 50% = $1,000

March $2,000 * 30% = $600

April $2,000 * 20% = $400

Operating Income

January = $0

February $2,050 - 1,000 = $1,050

March $1,230 - $600 = $630

April $820 - $400 = $420