Answer:
1)
a. Cash account and Deferred subscription fees $420 million
The effect is an increase in assets and a corresponding increase in liabilities by $420 million.
b. Deferred subscription fees and Subscription revenue by $204 million
A decrease in liabilities and a corresponding increase in equity by $204 million
c. Deferred subscription fees and Subscription revenue by $216 million
A decrease in liabilities and a corresponding increase in equity by $216 million
2)
a. Debit Cash account $420 million
Credit Deferred subscription fees $420 million
Being entries to recognize deferred subscription fees
b. Debit Deferred subscription fees $204 million
Credit revenue $204 million
Being entries to recognize revenue earned
c. Debit Deferred subscription fees $216 million
Credit revenue $216 million
Being entries to recognize revenue earned
Explanation:
The accounting equation shows the relationship between the elements of a balance sheet which are assets liabilities and equity. This may be expressed mathematically as
Assets = Liabilities + Equity
While assets include fixed assets, cash, inventories, account receivables etc, liabilities include accounts payable, loans payable, accrued expenses etc.
Equity which represents the amount owed to the owners of the business includes retained earnings (which is the accumulation of the net income/loss over the years less dividends paid) and common shares.
When a fee is received in advance for a service yet to be rendered, the revenue for such fee is said to be unearned. The entries required are
Debit Cash account and Credit Unearned fees or deferred revenue.
As the service is performed and the revenue is earned, debit Unearned fees and credit revenue.
