On January 1, Fashion Forward Magazine received $15,000 from subscribers for the annual subscriptions that it recorded in Unearned Subscription Revenue. The issues of the magazine are mailed to subscribers quarterly. What amount of subscription revenue should the magazine recognize on March 31 when the first issue is sent in March?

(A) $15,000.

(B) $1,250.

(C) $7,500.

(D) $3,750.

(E) $0.

The answer is D. $3,750

Explanation:

This is an unearned revenue because the fee covers a service that will be rendered for a period of 12months (a year).

Unearned revenue is categorized as a liability because the customer has not fully exercised all its services/benefits.

So as this magazine is delivered monthly, this unearned subscription revenue decreases and revenue increases.

To calculate what will be earned monthly:

$15,000/12months

=$1,250.

So For January - $1,250

February - $1,250

March -. $1,250

So for the first quarter (January to March), $3,750 will be recognized as revenue while the unearned subscription revenue decrease by $3,750.

Alternatively, since 3 months make a quarter and we have 4 quarters in a year, it can be calculated as:

$15,000/4

$3,750.

Therefore, subscription revenue of $3,750 will be recognized every quarter.