On March 31, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year subscription for five different magazines. The subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Phoenix Company after adjustments on December 31 each year assuming Phoenix using a calendar reporting period?
A) $15,480; $11,610; $6,540; $1,290.
B) $3,870; $5,160; $5,160; $1,290.
C) $5,160; $5,160; $5,160.
D) $11,610; $6,450; $1,290; $0.
E) The answer cannot be determined based on the information given.

Question

Quizplus · Accepted Answer

The total amount paid for the subscription was $15,480 and it was for a 3-year subscription. Therefore, the yearly subscription cost is $15,480/3 = $5,160.

At the end of the first year (December 31), Phoenix will have used up one year of the subscription, so the Prepaid Subscription account balance should be:

$5,160 x 1 = $5,160

At the end of the second year (December 31), Phoenix will have used up two years of the subscription, so the Prepaid Subscription account balance should be:

$5,160 x 2 = $10,320

At the end of the third year (December 31), Phoenix will have used up three years of the subscription, so the Prepaid Subscription account balance should be:

$5,160 x 3 = $15,480

Therefore, the correct answer is D.