Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 10-4

(b) Subscription revenue of $1,700,000 will appear on the income statement for the year ending December 31, 2014.

Unearned subscription revenue of $600,000 will appear as a current liability on the December 31, 2014, balance sheet because Viewer Publishers has an obligation to deliver magazines (or refund $600,000) to subscribers within one year of the balance sheet date because of revenues collected in advance.

Unearned subscription revenue of $700,000 will appear as a long-term liability on the December 31, 2014, balance sheet because of collections from customers for revenue to be earned in periods beyond one year from the balance sheet date.

Approach and Explanation: Draw a T-account. Enter the information given. Solve for the missing link.

A magazine company often collects cash from subscribers before it provides magazines to them. Thus, at the point of receipt of cash, the company has an obligation to publish and deliver magazines for a number of months that follow the cash receipts.

Revenue is to be recognized in the period it is earned. If cash collections of $3,000,000 have been received and credited to the unearned revenue account during the period and the only unearned amount at the end of the period is $1,300,000, $1,700,000 must be removed from ...