An automotive magazine charges an annual subscription fee of $300, with customers prepaying the fee. Subscribers receive 50 issues for the annual fee. The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track. The list price of the ride along experience is $200. The company estimates that 35% of the coupons will be utilized. What is the number of performance obligations?

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21 April, 02:36

An automotive magazine charges an annual subscription fee of $300, with customers prepaying the fee. Subscribers receive 50 issues for the annual fee. The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track. The list price of the ride along experience is $200. The company estimates that 35% of the coupons will be utilized. What is the number of performance obligations?

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Samuel Terrell · Answer 1

The numbrer of performance obligations is equal to the number of new subscribers.

Explanation:

Each new subscriber generates a performance obligation, as the automotive magazine provides a coupon to each new subscriber, and each coupon is a promise to provide the discount.

A perfomance obligation is a contractual promise to provide a "distinct" good or service to a customer" (taken from the internet).

Whether or not the an obligation will be recognized or not will depend on whether the subscriber uses the coupon or not, but that does not depend on the will of the automotive magazine: they are obliged to provide the discount to every subsriber that uses the coupon (within the terms of the contract).

Thus, since each coupon is a contract, each one is a performance obligation.