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Chapter 3: Q.3SE-a (page 158)

Question :Seacoast Magazine sells subscriptions for $36 for 18 issues. The company collects cash in advance and then mails out the magazines to subscribers each month. Apply the revenue recognition principle to determine a. when Seacoast Magazine should record revenue for this situation. b. the amount of revenue Seacoast Magazine should record for eight issues.

Short Answer

Expert verified

Answer

The company should recognize the revenue after each successive issue to the customers.

Step by step solution

01

Explanation of Revenue Recognition Principle

Per the revenue recognition principle, revenue should be recorded when the goods or services are provided to the customers.

02

Explanation of Revenue Recording

Advance receipt of $36 will be recorded as unearned revenue in the account books. In this case, revenue will be recorded when a magazine is issued to the customers.

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Most popular questions from this chapter

Question :Griffin Fishing Charters has collected the following data for the December 31 adjusting entries: a. The company received its electric bill on December 31 for \(375 but will not pay it until January 5. (Use the Utilities Payable account.) b. Griffin purchased a three-month boat insurance policy on November 1 for \)1,200. Griffin recorded a debit to Prepaid Insurance. c. As of December 31, Griffin had earned \(3,000 of charter revenue that has not been recorded or received. d. Griffin’s fishing boat was purchased on January 1 at a cost of \)33,500. Griffin expects to use the boat for 10 years and that it will have a residual value of \(3,500. Determine annual depreciation assuming the straight-line depreciation method is used. e. On October 1, Griffin received \)9,000 prepayment for a deep-sea fishing charter to take place in December. As of December 31, Griffin has completed the charter. Requirements 1. Journalize the adjusting entries needed on December 31 for Griffin Fishing Charters. Assume Griffin records adjusting entries only at the end of the year. 2. If Griffin had not recorded the adjusting entries, indicate which specific category of accounts on the financial statements would be misstated and if the misstatement is overstated or understated. Use the following table as a guide

Question :Austin Acoustics recorded the following transactions during October: a. Received \(2,500 cash from customer for three months of service beginning October 1 and ending December 31. The company recorded a \)2,500 debit to Cash and a \(2,500 credit to Unearned Revenue. b. Employees are paid \)3,000 on Monday following the five-day workweek. October 31 is on Friday. c. The company pays \(440 on October 1 for its six-month auto insurance policy. The company recorded a \)440 debit to Prepaid Insurance and a \(440 credit to Cash. d. The company purchased office furniture for \)8,300 on January 2. The company recorded a \(8,300 debit to Office Furniture and an \)8,300 credit to Accounts Payable. Annual depreciation for the furniture is \(1,000. e. The company began October with \)50 of office supplies on hand. On October 10, the company purchased office supplies on account of \(100. The company recorded a \)100 debit to Office Supplies and a \(100 credit to Accounts Payable. The company used \)120 of office supplies during October. f. The company received its electric bill on October 31 for \(325 but did not pay it until November 10. g. The company paid November’s rent of \)2,500 on October 30. On October 30, the company recorded an \(2,500 debit to Rent Expense and a \)2,500 credit to Cash. Indicate if an adjusting entry is needed for each item on October 31 for the month of October. Assuming the adjusting entry is not made, indicate which specific category or categories of accounts on the financial statements are misstated and if they are overstated or understated. Use the following table as a guide. Item a is completed as an example:used.

What is a deferred revenue? Provide an example.

Question :The unadjusted trial balance of Anniston Air Purification System at December 31, 2018, and the data needed for the adjustments followANNISTON AIR PURIFICATION SYSTEM Unadjusted Trial Balance December 31, 2018 Adjustment data at December 31 followAccount Title Prepaid Rent Cash Debit Credit Accounts Receivable Office Supplies Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Revenue Common Stock Dividends Service Revenue Salaries Expense Rent Expense Depreciation Expense—Equipment Advertising Expense Supplies Expense Total Balance \( 7,600 \) 69,000 \( 69,000 22,000 43,800 3,100 15,300 19,700 2,900 1,800 \) 3,900 2,900 9,900 3,300 1,800 a. On December 15, Anniston contracted to perform services for a client receiving \(3,100 in advance. Anniston recorded this receipt of cash as Unearned Revenue. As of December 31, Anniston has completed \)2,100 of the services. b. Anniston prepaid two months of rent on December 1. (Assume the Prepaid Rent balance as shown on the unadjusted trial balance represents the two months of rent prepaid on December 1.) c. Anniston used \(750 of office supplies. d. Depreciation for the equipment is \)850. e. Anniston received a bill for December’s online advertising, \(1,100. Anniston will not pay the bill until January. (Use Accounts Payable.) f. Anniston pays its employees on Monday for the previous week’s wages. Its employees earn \)3,500 for a five-day workweek. December 31 falls on Wednesday this year. g. On October 1, Anniston agreed to provide a four-month air system check (beginning October 1) for a customer for $3,400. Anniston has completed the system check every month, but payment has not yet been received and no entries have been made. Requirements 1. Journalize the adjusting entries on December 31. 2. Using the unadjusted trial balance, open the T-accounts with the unadjusted balances. Post the adjusting entries to the T-accounts. 3. Prepare the adjusted trial balance. 4. How will Anniston Air Purification System use the adjusted trial balance?

On November 1, Carlisle Equipment had a beginning balance in the Office Supplies account of \(600. During the month, Carlisle purchased \)2,300 of office supplies. At November 30, Carlisle Equipment had $500 of office supplies on hand. Requirements 1. Open the Office Supplies T-account, and enter the beginning balance and purchase of office supplies. 2. Record the adjusting entry required at November 30. 3. Post the adjusting entry to the two accounts involved, and show their balances at November 30.
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