Evans Ltd. publishes a monthly newsletter for retail marketing managers and requ

Question

Evans Ltd. publishes a monthly newsletter for retail marketing managers and requires its subscribers to pay $37 in advance for a one-year subscription. During the month of August 2016, Evans Ltd. sold 280 one-year subscriptions and received payments in advance from all new subscribers. Only 66 of the new subscribers paid their fees in time to receive the August newsletter; the other subscriptions began with the September newsletter.

a-3. Record the journal entry to show the effect of subscription fees received in advance and Subscription revenue earned during August 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

  

Explanation / Answer

Step 1 Cash received from sale of one year subscriptions = 280*$37 = $10,360

This cash received is reported as unearned revenue and shown as liability in the financial statements. The earned revenue is recognised in the month to which it relates and the amount of earned revenue will be deducted from the liability of unearned revenue.

Step 2 : Earned revenue for the month of August 2016 = $10,360*(1/12 months)*(66/280 subscribers) = $203.50 (we recognised one month revenue, from the subscribers that paid in time to receive the August newsletter)

Step 3 : a-3) Journal Entry (Amount in $)

Account Titles and explanations Debit Credit Cash 10,360 Unearned Revenue 10,360 (To record the subscription fees received in advance) Unearned Revenue 203.50 Sales Revenue 203.50 (To recognise the earned revenue for the month of August 2016)

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