Telephone Sellers Inc. Financial Analysis: Income Recognition for Prepaid Telephone Cards Sales
Income Recognition for Prepaid Telephone Cards Sales
Telephone Sellers Inc. sells prepaid telephone cards to customers. Telephone Sellers then pays the telecommunications company, TeleExpress, for the actual use of its telephone lines related to the prepaid telephone cards. Assume that Telephone Sellers sells $4,000 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 Telephone Sellers for TeleExpress lines over the 3 months is $3,000.