Case 09 1 Velocity Cellular

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Case 09-1 Velocity Cellular 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 Company’s promotion of its new prepaid phone service plan. The controller also provided the engagement team with an accounting memo discussing the Company’s new plan. MEMO To: From: Subject: Date: Audit Engagement Team Controller, Velocity Cellular Services Accounting for New Prepaid Phone Service Plan 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 carrier’s 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…...

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