Question

Magazine sold 12,480 annual subscriptions on August 1, 2020, for $23 each. Prepare Blossom’s August 1, 2020, journal entry and the December 31, 2020, annual adjusting entry, assuming the magazines are published and delivered monthly.

Answer 1

Answer:

Dr cash    $ 287,040  

Cr unearned revenue $ 287,040

Dr unearned revenue $119,600

Cr earned revenue                     $119,600

Explanation:

The Magazine received the subscriptions in advance prior to delivering the published magazine to its readers, as a result, the subscriptions would be treated as unearned revenue until the magazines are delivered, when each month revenue would be recognized.

Amount received=$23*12480=$287,040  

On 31 December 2020,5 months publications would have been delivered and should now be shown as revenue earned

5-month subscription=$287,040*5/12=$119600