Telephone Sellers Inc. sells prepaid telephone cards to customers. Telephone Sellers then pays the telecommunications company, TeleExpress, for the actual use of its telephone lines related to the prepaid telephone cards. Assume that Telephone Sellers sells $4,000 of prepaid cards in January 2020. It then pays TeleExpress based on usage, which turns out to be 50% in February, 30% in March, and 20% in April. The total payment by Telephone Sellers for TeleExpress lines over the 3 months is $3,000.

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TomShelby TomShelby · Answer 1 · 2020-03-11T02:55:25+01:00

Answer:

January zero

Feb Income 1,000

March Income 200

April loss 200

Questions:

Determiante the income for each month

Explanation:

As accounting uses an accrual basis rather than a cash basis to recognize results these revenues will be recognize as the customer uses

$4,000 x 50% Feb = $2,000 revenue on February

$4,000 x 30% March = $1,200 revenue on March

$4,000 x 20% April = $ 800revenue on April

The 3,000 expenses will be distribute equally among each month that is 1,000 per month

Income for February 2,000 - 1,000 = 1,000

for March 1,200 - 1,000 = 200

for April 800 - 1,000 = -200 (this is a loss)

January will have no income as no expense were incurred and no gain accrued