Answer:
a. Debit Cash account $240
Credit Unearned/deferred revenue $240
Being entries for cash received up front for yearly magazine subscription.
b. Debit Unearned/deferred revenue $60
Credit Subscription revenue $60
Being entries to recognize revenue earned by 31 December
Explanation:
When cash is received in advance from customers, this represents a liability to the entity as the company has an obligation as a result of the past receipt of cash.
Since On October 1, Sponge Bob, Inc. received $240 up front from a customer for a yearly magazine subscription. Magazines are provided one per month.
Monthly earnings = 1/12 × $240 = $20
Entries required on October 1 for Sponge Bob, Inc. are
Debit Cash account $240
Credit Unearned/deferred revenue $240
Being entries for cash received up front for yearly magazine subscription.
For 3 months of magazines provided to the customer by December 31
Revenue earned = 3 × $20 =$60
Adjusting entries required by 31 December
Debit Unearned/deferred revenue $60
Credit Subscription revenue $60
Being entries to recognize revenue earned by 31 December
