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 amount should appear in the Prepaid Subscription account for Santa Fe, 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?

Question

Quizplus · Accepted Answer

Santa Fe, Inc. paid for a 36-month subscription, so each month costs $43 ($1,548/36). By December 31, 9 months have passed, so $387 ($43 x 9) should be expensed. The remaining prepaid amount is $1,161 ($1,548 - $387).