Case 09-1 Velocity Cellular Essay
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.
To: Audit Engagement Team
From: Controller, Velocity Cellular Services
Subject: Accounting for New Prepaid Phone Service Plan
Date: August 31, 2011
Velocity Cellular Services (Velocity or the Company) sells wireless services and products based on the Global System for Mobile Communications (GSM) standard. Under …show more content…
• Additional memory for the subscriber’s 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 subscriber’s 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 subscriber’s 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