Question

In November and December 2017, Gee Company, a newly organized magazine publisher, received $36,000 for 1,000 three-year subscriptions at $12 per year, starting with the January 2018 issue of the magazine.

Required:
How much should Gee report in its 2017 income statement for subscriptions revenue on an accrual basis? What are Gee's cash receipts in 2017?

Answer 1

Gee Company should report $0 in its 2017 income statement for subscriptions revenue on an accrual basis. The cash receipts in 2017 for Gee Company are $36,000.

Step-by-step explanation:

To report subscriptions revenue on an accrual basis for 2017, Gee Company should recognize only the portion that pertains to the year 2017. Since the subscriptions start in January 2018, none of the revenue should be recognized as income for 2017. Therefore, Gee Company should report $0 in its 2017 income statement for subscriptions revenue on an accrual basis.

However, Gee Company received $36,000 in cash for the subscriptions in 2017. This cash receipt is considered advanced payment for the future service, and it should be recorded on the books as a liability called 'Unearned Revenue' until the service is provided in 2018.

Answer 2

Gee report in its 2017 income statement for subscriptions revenue will be zero on an accrual basis.

Gee's cash receipts in 2017 is $36,000

Step-by-step explanation:

In accounting, there are two basis of transaction recognition. These are Accrual and cash basis.

In accrual basis, revenue and expenses are recorded when earned and incurred respectively. In the cash basis on the other hand, revenue and expenses are recognized only when cash is received and paid respectively.

In accrual basis, no revenue will be recognized in the income statement for 2017 as the revenue will be earned from 2018.

For cash basis, $36,000 will be recognized in 2017