Healthy Living,a diet magazine,collected $1,440,000 in subscription revenue on 31 May.Healthy Living earns a minimum of $1,080,000 from the buyers who are not the subscribers.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.By the end of December,what is the amount of Subscription revenue that has been earned?

Question

Quizplus · Accepted Answer

Since the subscribers receive an issue for each of the next 12 months, the revenue is recognized over the 12-month period. Therefore, by the end of December, 6 issues will have been delivered to subscribers.

The subscription revenue that has been earned by the end of December can be calculated as follows:

Subscription revenue earned = (Subscription revenue collected / Number of issues delivered) x Number of issues delivered by the end of December

= ($1,440,000 / 12) x 6

= $720,000

Therefore, the correct answer is B ($840,000 - $720,000 earned by end of December = $120,000 unearned).

Healthy Living,a Diet Magazine,collected $1,440,000 in Subscription Revenue on 31