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 adjusting entry should be made by Santa Fe,Inc.for the adjustment on December 31 of the first year assuming the company is using a calendar reporting period and no previous adjustments had been made?

Question

Quizplus · Accepted Answer

The adjustment entry should be made to recognize the portion of the prepaid subscriptions that have been used up during the first year. Since it has been 9 months (3/4th of the year), 3/4th of the prepaid amount should be recognized as an expense.

Therefore, the adjusting entry should be:
Debit Subscription Expense $387 (1,548*3/4) and credit Prepaid Subscriptions $387.