Question

Mantle Publications publishes a golf magazine for beginners interested in learning and playing golf. The magazine sells for $4.00 a copy on the newsstand. Yearly subscriptions to the magazine cost $36 per year (12 issues). During December 2016, Mantle Publications sells 4,000 copies of the golf magazine at newsstands and receives payment for 6,000 subscriptions for 2017. Financial statements are prepared monthly. Required: (a) Prepare the December 2016 journal entries to record the newsstand sales and subscriptions received. (b) Prepare the necessary adjusting entry on January 31, 2017. The January 2017 issue has been mailed to subscribers.

Answer 1

Answer:

December:

Dr cash         $16,000

Cr subscription revenue   $16,000

Dr cash                         $216,000

Cr unearned revenue                     $216,000

January 2017:

Dr unearned revenue $18,000

Cr subscription revenue            $18,000

Explanation:

The sales of 4000 copies at the newstand means that revenue of $16,000($4*4000) has been earned in December,which means that cash would debited with $16,000 and sales revenue credited with the same amount.

In December,the subscriptions received in advance for 2017 of $216,000($36*6000) would be debited to cash and credited to unearned revenue account.

At the end of January,the unearned revenue would be debited with $18,000($216,000/12) in respect of subscription earned as a result of the Magazine been mailed to subscribers in the month,which now entitles the company to one month subscription as earned sales revenue.