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Chapter 13: Question 4BE (page 692)

BE13-4 (L01) Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2017, for $18 each. Prepare Sport Pro鈥檚 August 1, 2017, journal entry and the December 31, 2017, annual adjusting entry, assuming the magazines are published and delivered monthly.

Short Answer

Expert verified

The amount of subscription revenue is $90,000.

Step by step solution

01

Meaning of Subscription

The subscription is the amount of money paid by a subscriber to any entity, institute, or club to remain effective in its membership over the period. It is income for receiving entity.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

August 1, 2017

Cash

$216,000

Unearned Subscription Revenue (12,000 x $18)

$216,000

December 31, 2017

Unearned Subscription Revenue

$90,000

Subscription Revenue ($216,000 x 5/12)

$90,000

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Most popular questions from this chapter

(Contingencies) Presented below are three independent situations. Answer the question at the end of each situation:

1. During 2017, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa鈥檚 attorneys have indicated that they believe it is probable that Salt-n-Pepa will lose this dispute. They also believe that Salt-n-Pepa will have to pay the IRS between \(900,000 and \)1,400,000. After the 2017 financial statements were issued, the case was settled with the IRS for \(1,200,000. What amount, if any, should be reported as a liability for this contingency as of December 31, 2017?

2. On October 1, 2017, Alan Jackson Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Jackson鈥檚 management along with its counsel have concluded that it is probable that Jackson will be responsible for damages, and a reasonable estimate of these damages is \)5,000,000. Jackson鈥檚 insurance policy of \(9,000,000 has a deductible clause of \)500,000. How should Alan Jackson Chemical report this information in its financial statements at December 31, 2017?

3. Melissa Etheridge Inc. had a manufacturing plant in Sudan, which was destroyed in the civil war. It is not certain who will compensate Etheridge for this destruction, but Etheridge has been assured by governmental officials that it will receive a definite amount for this plant. The amount of the compensation will be less than the fair value of the plant, but more than its book value. How should the contingency be reported in the financial statements of Etheridge Inc.?

Question: Distinguish between debt security and equity security.

Alvarado Company sells a machine for \(7,400 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 600 machines in 2017 (warranty expense is incurred half in 2017 and half in 2018). As a result of product testing, the company estimates that the total warranty cost is \)390 per machine (\(170 parts and \)220 labor).

Instructions

Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?

(a) Sale of machinery and warranty expense incurred in 2017.

(b) Warranty accrual on December 31, 2017.

(c) Warranty costs incurred in 2018.

(d) What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2017?

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company鈥檚 first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson鈥檚 net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson鈥檚 net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable

(Current Liability Entries and Adjustments) Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system.

1. On February 2, the corporation purchased goods from Martin Company for \(70,000 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26.

2. On April 1, the corporation bought a truck for \)50,000 from General Motors Company, paying \(4,000 in cash and signing a 1-year, 12% note for the balance of the purchase price.

3. On May 1, the corporation borrowed \)83,000 from Chicago National Bank by signing a \(92,000 zero-interest-bearing note due 1 year from May 1.

4. On August 1, the board of directors declared a \)300,000 cash dividend that was payable on September 10 to stockholders of record on August 31.

Instructions

(a) Make all the journal entries necessary to record the transactions above using appropriate dates.

(b) Edwardson Corporation鈥檚 year-end is December 31. Assuming that no adjusting entries relative to the transactions above have been recorded, prepare any adjusting journal entries concerning interest that are necessary to present fair financial statements at December 31. Assume straight-line amortization of discounts.
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