Research Case Velocity Cellular Objectives: The main objective of the case is to expose students to an accounting reporting situation where they have to search, identify, interpret and apply official accounting pronouncements. The research case enhances the students ability to look for and evaluate relevant information. Students should also improve their ability to organize ideas in written communication. Requirement: Assume the role of a staff accountant who has been asked to research the appropriate revenue recognition for a client, Velocity Cellular, for its new product, the Power Starterpack. You have been provided with a memo from the client describing the new product and you are to prepare your own memo to your supervisor that that discusses in your own words the existence of relevant revenue recognition alternatives given the facts of the case. You must also recommend and justify what you believe to be the most appropriate accounting treatment (which would also state why other alternative(s) would not be appropriate). Be sure to reference the specific official accounting pronouncements from the sources mentioned below. While no specific citation format is required, you should follow a generally accepted format of some kind. Resources: You can search for relevant applicable professional pronouncements or other pronouncements that you find suitable for the case using the internet as well as the Accounting Research Manager (available electronically at the library). You should focus your searches using the following sources: FASB Codification (Topic 605) Emerging Issues Task Force, EITF Documents SEC Staff Accounting Bulletins (Topic 13) Format: The paper should be no more than 3 pages long, typewritten, double-spaced using word-processing software. Your memo should very briefly describe the problem (e.g., no more than 3 sentences) and the majority of the space, should discuss the solution. The paper MUST be stapled. Please do not include a cover or title page, binders or plastic covers. Grading Criteria: The case has a value of 20 points and will be graded based on your critical thinking and analytical abilities (i.e., the ability to (1) analyze unstructured cases, (2) identify the relevant issues, (3) research the professional literature, and (4) prepare a well-structured recommendation in writing). In addition, a portion of your grade will be evaluated on the clarity and organization of the paper as well as grammar and punctuation. Due date: Monday, November 22, 2010 at the beginning of the class. Case 09-1 Velocity Cellular Copyright 2007 Deloitte Development LLC. All rights reserved. In conjunction with quarterly review procedures, the controller of Velocity Cellular Services (Velocity or the Company) provided the audit engagement team with background information about the Companys promotion of its new prepaid phone service plan. The controller also provided the engagement team with an accounting memo discussing the Companys new plan. MEMO To: Audit Engagement Team From: Controller, Velocity Cellular Services Subject: Accounting for New Prepaid Phone Service Plan Date: August 31, 2008 Velocity Cellular Services (Velocity or the Company) sells wireless services and products based on the Global System for Mobile Communications (GSM) standard. Under the GSM standard, each subscriber is required to have an activation card to access the network; the activation card is therefore necessary for subscribers to use their cellular phones. The activation card identifies the subscriber, provides the subscriber with a unique phone number, and only works on a specific carriers network (i.e., the activation card is not interchangeable with other carrier networks). The Company is planning to promote and market a prepaid phone service plan called Power Starterpack as part of its line of service plans to existing wireless subscribers (i.e., individuals who already own a cellular phone). The Company adopted ASU 2009-13, Revenue Arrangements With Multiple Deliverables in the current fiscal year. Power Starterpack Prepaid Phone Service Plan The Power Starterpack will provide each subscriber with a new activation card and a prepaid voucher for a total nonrefundable fee of $200. By replacing the old activation card with the updated 2008 activation card, the following additional functionalities are provided: ? Bluetooth-enabled technology that allows current subscribers to have wireless control of and communication between their existing cellular phone and a hands-free headset (hands-free headset is sold separately). ? Technology that enables the existing cellular phone to make international phone calls. The older activation cards limited existing cellular phones to domestic calls. Case 09-1 Velocity Cellular Copyright 2007 Deloitte Development LLC. All rights reserved. ? Additional memory for the subscribers existing cellular phone provides storage for an additional 300 names and phone numbers. When they purchase a Power Starterpack, subscribers are required to return the old activation card to the Company and install the new activation card in their existing cellular phones. Also included in the purchase of the Power Starterpack is a prepaid voucher that gives the subscriber an airtime window of 360 days to use $50 worth of minutes. However, if there is no activity for a consecutive period of seven months, the subscribers account is terminated (including the assigned phone number) and no refund is given. Additional prepaid vouchers are available in $50, $100, $150, and $200 increments. Replacement Activation Cards Current subscribers can also purchase a new activation card if an existing activation card is lost, malfunctions, or new functionalities are needed on the subscribers existing cellular phone. New activation cards can be purchased on a standalone basis directly from Velocity. The same model activation cards, with the same additional functionalities as those sold in the Power Starterpack, can also be purchased through other independent wireless phone retailers. Standalone transactions for new activation cards are infrequent and typically stem from owners of old activation cards who need to upgrade to new activation cards when new phones are purchased. There are no general rights of return held by the subscriber relative to the delivered item contained in the prepaid plan