Question

Pharoah Company publishes a monthly sports magazine, Fishing Preview. Subscriptions to the magazine cost $25 per year. During November 2019, Pharoah sells 35,832 subscriptions beginning with the December issue. Pharoah prepares financial statements quarterly and recognizes subscription revenue at the end of the quarter. The company uses the accounts Unearned Subscription Revenue and Subscription Revenue.

a. Prepare the entry in November for the receipt of the subscriptions
b. Prepare the adjusting entry on December 31, 2019, to record sales revenue recognized in December 2019.
c. Prepare the adjusting entry on March 31, 2020, to record sales revenue recognized in the first quarter of 2020.

Answer 1

Answer and Explanation:

The Journal entry with their narrations is shown below:-

1. Cash Dr, $895,800

($25 × 35,832)

To Unearned subscriptions revenue $895,800

(Being the receipt of the subscriptions is recorded)

For recording the receipt of the subscriptions we simply debited the cash as is increasing while we credited the unearned subscriptions revenue as it also increasing the liability

2. Unearned subscriptions revenue Dr, $74,650

($895,800 ÷ 12)

To subscriptions revenue $74,650

(Being sales revenue is recorded)

For recording the sales revenue we simply debited the unearned subscriptions revenue as it decreases the liability and we credited the subscriptions revenue as it is a income

3. Unearned subscriptions revenue Dr, $223,950

($895,800 × 3 ÷ 12)

To subscriptions revenue $223,950

(Being sales revenue recognized in the first quarter is recorded)

For recording the sales revenue we simply debited the unearned subscriptions revenue as it decreases the liability and shows the one quarter month that is three months and we credited the subscriptions revenue as it is a income.