Reference no: EM132737395

T-Mobile sells a wireless phone/data plan called "Magenta." Under that plan, customers pay $70 per month (including all taxes and fees). In exchange, T-Mobile offers:

1. unlimited talk and text
2. unlimited 4G LTE data on their network
3. 5G access, scam protection
4. T-Mobile Tuesdays ("free stuff, discounts, and more with the T-Mobile Tuesdays app"); and
5. "dedicated customer care team."
6. Also, the customer gets international texting and data, Gogo in-flight texting and wi-fi, and unlimited video streaming.

• Also, if the customer trades in an old iPhone, T-Mobile will give the customer a 64GB iPhone 12 with the purchase of a plan. The customer is obligated to keep the plan for 30 months or has to pay the remaining balance on the price of the phone, which has a price of $829.99 (that is, every month, T-Mobile gives the customer credit of $27.66 toward the total purchase price of the phone, which is $829.99; if the customer ends the plan before the phone is fully credited, the customer must pay the remainder of the phone's price).
• On December 1, 2020, N. Sarmatina signed a contract with T-Mobile for its Magenta plan and paid the first month's fee of $70. T-Mobile provided Ms. Sarmatina with an iPhone 12 (64GB).

Required:

Problem 1. Using the 5-step framework for revenue recognition, analyze the agreement and briefly describe how it should be accounted for under the framework. Include brief discussion of EACH of the 5 steps and how you would apply them to this situation.

Problem 2. How much revenue will T-Mobile recognize (under US GAAP[1]) for the month of December from its sale to N. Sarmatina? Show your work and explain your reasoning.