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 second year assuming the company is using a calendar-year 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 each month is $1,548/36 = $43. Thus, after two years (i.e. 24 months), the amount that should be left in the Prepaid Subscription account is 12 months x $43/month = $516. Therefore, the correct answer is D) $645, which is the original debit balance of $1,548 minus the amount that should be left in the account after two years ($903) due to adjustments made at the end of each year.