Question

Winn Co. sells subscriptions to a specialized directory that is published semiannually and shipped to subscribers on April 15 and October 15. Subscriptions received after the March 31 and September 30 cutoff dates are held for the next publication. Cash from subscribers is received evenly during the year and is credited to deferred subscription revenue. Data relating to year 2 are as follows:
Deferred subscription revenue, 1/1/Y2 $ 750,000
Cash receipts from subscribers 3,600,000
Required:
(A) In its December 31, year 2 balance sheet, Winn should report deferred subscription revenue of __________.
O $ 900,000
O $2,700,000
O $1,800,000
O $1,650,000

Answer 1

Answer:

O $ 900,000

Explanation:

When a fee is received in advance for a service yet to be rendered, the revenue for such fee is said to be unearned. The entries required are

Debit Cash account and Credit Unearned fees or deferred revenue.

As the service is performed and the revenue is earned, debit Unearned fees and credit revenue.

Given that

• the specialized directory that is published semiannually and shipped to subscribers on April 15 and October 15 and

• Subscriptions received after the March 31 and September 30 cutoff dates are held for the next publication and

• Cash from subscribers is received evenly during the year and is credited to deferred subscription revenue

The amount to be deferred is the sum of the amounts collected after September 30 (from October to December year 2

= 3/12 * $3,600,000

= $900,000