On April 1,Otisco,Inc.paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines.Otisco debited the prepayment to a Prepaid Subscriptions account,and the subscriptions started immediately.What amount should appear in the Prepaid Subscription account for Otisco,Inc.after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

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Quizplus · Accepted Answer

The total cost of the subscriptions is $1,548 for 36 months. By December 31 of the first year, 9 months have passed, so 9/36 of the total cost has been used. This equals $387 (9 months * $1,548 / 36 months). The remaining balance, or the amount that should appear in the Prepaid Subscription account after adjustments, is the initial amount minus the used portion: $1,548 - $387 = $1,161.