Global spending on mobile games is expected to surpass $100 billion in 2020 (compare that to the $64 billion spent on toilet paper in 2019). Many of these games are offered free, with options to purchase virtual goods or other premium content (i.e., freemium games). However, it is not always clear when mobile gaming companies should recognize revenue for purchases of virtual goods. Abstergo Industries is a mobile game company that offers its Wizard Warriors game free to customers but charges for magic spells that can be used in the game. A set of three magic spells costs $6. Customers can use each of the three spells once at any time they choose. Answer the following two questions, and justify your answers by referring to revenue recognition guidelines that we discussed in class. Limit your answers to no more than a few sentences. a. 1. When should Abstergo recognize revenue for a sale of a set of three magic spells? When the customer pays for the spells? b. Gradually over a specified period of time (regardless of when they are used)? c. When the first spell is used? d. When the final spell is used? e. Gradually over time as each spell is used (i.e., $2 upon use of each)? If you choose (b), what time period would you use? If you choose (c), (d), or (e), when, if ever, would you recognize revenue if the customer doesn't ever use the spells? Global spending on mobile games is expected to surpass $100 billion in 2020 (compare that to the $64 billion spent on toilet paper in 2019). Many of these games are offered free, with options to purchase virtual goods or other premium content (i.e., freemium games). However, it is not always clear when mobile gaming companies should recognize revenue for purchases of virtual goods. Abstergo Industries is a mobile game company that offers its Wizard Warriors game free to customers but charges for magic spells that can be used in the game. A set of three magic spells costs $6. Customers can use each of the three spells once at any time they choose. Answer the following two questions, and justify your answers by referring to revenue recognition guidelines that we discussed in class. Limit your answers to no more than a few sentences. a. 1. When should Abstergo recognize revenue for a sale of a set of three magic spells? When the customer pays for the spells? b. Gradually over a specified period of time (regardless of when they are used)? c. When the first spell is used? d. When the final spell is used? e. Gradually over time as each spell is used (i.e., $2 upon use of each)? If you choose (b), what time period would you use? If you choose (c), (d), or (e), when, if ever, would you recognize revenue if the customer doesn't ever use the spells
