Question

​Wellness, a healthy living​ magazine, collected in subscription revenue on May 31. Each subscriber will receive an issue of the magazine in each of the next 12​ months, beginning with the June issue. The company uses the accrual method of accounting. What is the balance in the Unearned Revenue account as of December​ 31?

Answer 1

Answer: $220,000

Explanation:

Using the Accrual Method of Accounting means that revenue is only to be recorded when it is earned i.e. when services have been delivered.

Any revenue received when the services have not been delivered will be recorded as Unearned Revenue.

With $528,000 in subscription revenue, the monthly subscription is;

= 528,000/12

= $44,000

From June to December would be 7 months so they would have earned;

= 44,000 * 7

= $308,000

The amount that they have not earned but have received would therefore be;

= 528,000 - 308,000

= $220,000

This amount will be recorded after they finish deliveries of magazines in next year May.