Barrios Communications is a provider of satellite television services. It will i

Question

Barrios Communications is a provider of satellite television services. It will install a satellite dish free of charge for any customer that agrees to a one-year service contract at a price of $50 per month. Installation costs Barrios $150. Customers typically remain with Barrios for much longer than the one year required, an average of 10 years (i.e., 9 years beyond their contractual obligation).

Barrios enters into a contract under the terms described above on January 1, 2019.

Required:

1. What amount of revenue should Barrios record related to the contract in 2019?

2. What amount of expense related to the contract should Barrios record related to the contract in 2019?

Explanation / Answer

Q1 Barrios communication should record $ 600 (50*12) as revenue in 2019.

Q2 Barrious communications should record $ 150 as expenses in 2019. It does not matter no. of years (after one year) customers continues with the service.

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