Chapter 8, Problem 8.3MC

Telecom Co. enters into a two-year contract with a customer to provide wireless service (voice and data) for $40 per month. To induce customers, Telecom Co. provides a free phone. Telecom Co. normally sells the phone on a standalone basis for $200. Telecom Co. also charges the customer a one-time activation foe of $35. Which of the following is true?

1. a. The free phone constitutes a marketing expense.
2. b. The activation fee is a separate performance obligation.
3. c. There are two distinct performance obligations: the wireless service and the phone.
4. d. There are two distinct performance obligations: the voice service and the data service.