Please make sure to utilize all the various resources at your disposal to tackle these (ASC guidance, EY FRD and TRG).

1) My former company, Blackhawk Network (BHN), partners with issuing bank (Bank) for the sale of prepaid Visa gift cards (Cards) to end consumers. Bank is the legal issuer of the Cards (it holds the funds) and has the agreement with Visa (Visa is the settlement network when the cards are redeemed). Bank has the direct contractual relationship with the end consumer as the terms and conditions of the Cards govern the relationship between the two.

BHN is responsible for producing the Cards, transporting the Cards to its Retail Distribution Partners (RDP, grocery stores, like Safeway, where prepaid cards are sold to consumers), maintaining the activation network that allows the RDP to activate the Cards at the POS, Additionally, after the Cards are activated, BHN is responsible for balance tracking, transaction processing and approval (by working with the Visa network to approve purchases on the Cards up to the amount loaded on it), maintaining a website for consumers to register their cards and track the balance, and providing email and phone-based customer service. Note that BHN has the direct contractual relationships with Bank and RDP under separate agreements.

As compensation for its services, BHN receives the purchase fee paid by the consumer, interchange (the acquiring merchant where the card is redeemed pays a percentage of the redemption amount to both Visa and the Bank, and Bank pays BHN all interchange earned), and a program management fee that is tied to the breakage rates on the card portfolio (breakage = amount that is not redeemed by consumers, either due to cards being lost or consumers leaving the last couple of $$ on the cards). BHN receives no compensation for simply producing the cards and transporting them to the RDP. If cards are lost or stolen prior to activation, BHN bears such risk of loss.

Based on many years of data, BHN has estimated that the life on the portfolio of cards is approximately one year. However, cards are redeemed and customer services utilized much greater in the first four months of activation, so BHN also has a ratable-redemption patterns over such one year life.

REQUIRED: Determine the performance obligations under the contract between BHN and Bank, and determine the appropriate method to recognize revenue for each performance obligation.