Magic,Inc.collected $12,000 in October 2011 from customers in exchange for 12-month subscriptions to its monthly magazine Magic Times.The October issue was the first issue of the subscription.How much revenue should the company report on its income statement for the year ended December 31,2011?

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Revenue recognition principle dictates that revenue is recognized when earned, regardless of when the cash is received. Since the subscription covers 12 months and only 3 months (October, November, December) fall within the year ended December 31, 2011, only 3/12 of the total subscription revenue, or $3,000, should be recognized in 2011. The remaining amount will be recognized as revenue in the subsequent period(s) as the service (monthly magazines) is delivered.

Magic,Inccollected $12,000 in October 2011 from Customers in Exchange for 12-Month