To determine the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the first year for the unearned revenue, we need to consider the portion of the subscriptions that has been earned during that period.
Given that the subscriptions are for 36 months and adjustments are only made at year-end, we can assume that one-third (12 months) of the subscriptions have been earned by December 31 of the first year.
Adjusting Entry:
To recognize the earned portion of the unearned revenue, the adjusting entry would be as follows:
Date Account Debit Credit
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December 31 Unearned Revenue $6,060
Magazine Revenue $6,060
Calculation:
$18,180 (initial credit) / 36 months = $505 (monthly revenue)
$505 (monthly revenue) * 12 months (earned period) = $6,060 (earned revenue)
Therefore, the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the first year is to debit Unearned Revenue for $6,060 and credit Magazine Revenue for the same amount. This entry recognizes the portion of the subscriptions that has been earned by the end of the first year.