On April 1,Santa Fe,Inc.paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines.Santa Fe debited the prepayment to a Prepaid Subscriptions account,and the subscriptions started immediately.What amount should appear in the Prepaid Subscription account for Santa Fe,Inc.after adjustments on December 31 of the second year assuming the company is using a calendar reporting period and the previous year adjustment had been made?

Question

Quizplus · Accepted Answer

Since the subscriptions were for 36 months, the total cost of 1 subscription for 1 month is $1548/36 = $43. The prepaid amount for 1 year (12 months) would be $43*12 = $516. By December 31 of the second year, 24 months (2 years) would have passed. Therefore, the amount of prepaid subscriptions that have been used up would be $43*24 = $1032. 
So, the amount that should appear in the Prepaid Subscription account after adjustments on December 31 of the second year would be: 
$1,548 (prepaid amount) - $1,032 (amount used up) = $516. Therefore, the correct answer is D) $645.