Final answer:
An adjusting entry is needed for Silver Magazine to recognize four months of subscription revenue by debiting Unearned Revenue and crediting Subscription Revenue for $20,000.
Step-by-step explanation:
The student is asking about the accounting treatment for a situation where a company has received cash for services that will be provided over a future period. Silver Magazine sold 600 one-year subscriptions for $100 each on September 1, 2017, which was initially recorded as Unearned Revenue. An adjusting entry is needed at the end of the accounting period (December 31, 2017) to recognize the revenue that has been earned during the period.
Since the subscriptions cover one full year, and four months have passed from September 1 to December 31, the company has earned 4/12 of the annual subscription fee per subscriber. Thus, the adjustment would involve recognizing four months' worth of revenue from subscriptions. The adjusting entry would debit Unearned Revenue and credit Subscription Revenue (or a similarly named revenue account).
The amount of revenue earned from September 1 to December 31 would be calculated as follows: 600 subscriptions * $100 per subscription = $60,000 total annual subscription revenue; $60,000 * (4/12) = $20,000 earned in four months. The required adjusting entry would be:
- Debit Unearned Revenue: $20,000
- Credit Subscription Revenue: $20,000