CellularCo runs a promotion in which new customers who sign a two-year

contract buy a smart phone at discount for $80. The contract requires the

customer to pay a cancellation fee of $300 if the customer cancels the contract.

There is a on-time "activation fee" of $50 and a monthly fee of $70 for the

ongoing service. The same monthly fee is charged by CellularCo regardless of

whether the phone is sold at discount. Further, assume that CellularCo

frequently sells the phone separately for $120. CellularCo is not required to

refund any portion of the fees paid for any reason. CellularCo is considering

whether 1) the phone and 2) the phone service (that is, the airtime) are multiple

obligations in the arrangement. The activation fee is simply considered additional

arrangement consideration to be allocated. The phone and activation are

delivered first, followed by the phone service (which is provided over the two-

year period of the arrangement). On January 1

st

, 2018, Cellular Co.

1) Are these multiple performance obligations for accounting purpose?

Why or why not?

2) If yes, how should the total consideration be allocated?