Question

Nate Beggs signs a 1-year contract with Bonita Video. The terms of the contract are that Nate is required to pay a nonrefundable initiation fee of $80. No annual membership fee is charged in the first year. After the rst year, membership can be renewed by paying an annual membership fee of $6 per month Bonita determines that customers, on average, renew their annual membership three times after the first year before terminating their membership. What amount of revenue should Bonita recognize in its first year? Revenue in first year

Answer 1

Revenue In First Year

$ 74

Explanation:

1) Initial Payment Paid $ 80

2) Total Payment Made During 3 Years:

= (12 month × $ 6 per month) × 3 years

= $ 216

3) Total Payment:

= $ 216 + $80

= $ 296

4) Revenue In First Year:

= Total Payment ÷ Total year

=$ 296 ÷ 4 year

= $ 74 per year