Ski Quarterly typically sells subscriptions on an annual basis, and publishes four times a year in January, April, July and October. The magazine sells 70,000 subscriptions in January at CHF20 each. If Ski Quarterly publishes a quarterly financial statement at March 31, the adjusting journal entry to recognize revenue will include
A) a debit to Cash for CHF466,667.
B) a debit to Subscription Revenue for CHF466,667
C) a debit to Unearned Subscription Revenue for CHF350,000.
D) a credit to Prepaid Subscriptions for CHF350,000.

Question

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Ski Quarterly has received payment for all 70,000 subscriptions in January, which amounts to CHF1,400,000 (70,000 subscriptions x CHF20 per subscription). However, since the magazine only publishes four times a year, the revenue from the subscriptions needs to be recognized over the course of the year as the issues are released. Therefore, as of March 31, only one-quarter of the subscription revenue should be recognized, or CHF350,000 (CHF1,400,000 divided by 4). This means that CHF1,050,000 of the subscription revenue is still considered unearned as of March 31 and should be recorded as a liability on the balance sheet. The adjusting journal entry should be a debit to Unearned Subscription Revenue for CHF350,000 and a credit to Subscription Revenue for CHF350,000. Choice A is incorrect because it recognizes all subscription revenue as earned as of March 31, which is not accurate. Choice B is incorrect because it only records the revenue component and not the remaining liability. Choice D is incorrect because it suggests that the company has paid for a prepaid subscription, but in fact, the company has received payment for an unearned subscription.

Ski Quarterly Typically Sells Subscriptions on an Annual Basis, and Publishes