Teenage Fanclub Printings Subscription Revenue Adjustment
1. What adjusting entry should be made in January if the subscriptions were originally recorded as a liability?
Answer:
The adjusting entry should be:
Debit Unearned revenue (liability) $2,500
Credit Revenue $2,500
2. What amount will be reported on the January 2018 balance sheet for Unearned Subscription Revenue?
Balance in unearned revenue as at 31 January 2018 is $27,500.
Answer:
The adjusting entry for January should be to debit Unearned revenue (liability) $2,500 and credit Revenue $2,500.
The balance in unearned revenue as at January 2018 will be $27,500.
Teenage Fanclub Printings sold annual subscriptions to their magazine for $30,000 in December 2017. The magazine is published monthly, and new subscribers received their first magazine in January 2018. If the subscriptions were initially recorded as a liability, an adjusting entry needs to be made in January.
The adjusting entry involves debiting Unearned revenue (liability) by $2,500 and crediting Revenue by $2,500. This entry recognizes the revenue earned from the subscriptions and reduces the unearned revenue liability.
As a result, the balance in unearned revenue on the January 2018 balance sheet will be $27,500, reflecting the amount of revenue that has not yet been earned from the subscriptions.
Properly adjusting the subscription revenue ensures accurate financial reporting and reflects the actual status of the company's financial position.