A company receives $360 for a 12-month trade magazine subscription on August 1. The adjusting entry on December 31 is a debit to Unearned Subscription Revenue, $150, and a credit to Subscription Revenue, $150. True / False.

Question

Business

Katie

23 March, 14:08

A company receives $360 for a 12-month trade magazine subscription on August 1. The adjusting entry on December 31 is a debit to Unearned Subscription Revenue, $150, and a credit to Subscription Revenue, $150. True / False.

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Answers (1)

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Nathanial Deleon · Answer 1

The answer is true

Explanation:

Unearned Subscription Revenue is the revenue that has not been earned but the money has been received ahead of the service. It is termed as a liability because the customer can terminate the contract anytime.

As the customer enjoys the service, subscription revenue will be recognized monthly by the calculated proportion and this unearned subscription revenue will decrease by the same amount.

12-month subscription is $360

Therefore, the subscription charge for each month will be $30 ($360/12months).

August 1 through December 31 is 5 months.

Therefore, the amount for adjusting entry on this day will be $150 (5 months x $30).

Note: Debit increases asset and expenses while credit decreases it. And debit decreases liability, equity, revenue while credit increases it.