S3-3 Applying the revenue recognition principle South Shore Magazine sells subsc

Question

S3-3 Applying the revenue recognition principle South Shore Magazine sells subscriptions for $60 for 12 issues. The company clles cash in advance and then mails out the magazines to subscribers each month Apply the revenue recognition principle to determine a. when South Shore Magazine should record revenue for this situation. b. the amount of revenue South Shore Magazine should record for eight issues. S3-4 Applying the matching principle Suppose on January 1, Antonio's Tavern prepaid rent of $6,000 for the ful year At June 30, how much rent expense should be recorded for the period January through June 30?

Explanation / Answer

S3-3

Revenue recognition principle states that revenue should be recognized only when it is actually earned, regardless of actual cash collection.

Ans:

a. South Shore Magazine record revenue on the date when the magazines are delivered through mails to the subscribers.

b. The amount of revenue South Shore magazine should record for eight issues is ($60 × 8) $480.

S3-4

Matching principle: Matching (expense) recognition principle indicates that expenses should be recorded in the same period when they are incurred to earn revenues.

Travern should record an amount of $3,000 ($6,000 × 6/12) as rent expense  for the period Jan 1 through June 30, at June 30.

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