On November 1, 2013, Paige Turner Publishing received $50,400 in cash for subscriptions covering one year, recording the entry as a debit to Cash and a credit to Unearned Subscriptions. The correct adjusting entry at December 31, 2013, is

Question

Quizplus · Accepted Answer

Since the original entry recorded $50,400 as Unearned Subscriptions, it means that Paige Turner Publishing did not earn any revenue from these subscriptions yet. At the end of the accounting period (December 31, 2013), some of these subscriptions may have been fulfilled (meaning the customers received the publications), and Paige Turner Publishing can now recognize a portion of the revenue earned.

To calculate the amount of earned revenue, we can divide the total amount received ($50,400) by the number of months the subscriptions cover (12 months). This gives us $4,200 of earned revenue per month. Since December represents one month of the 12-month subscription period, we can recognize $4,200 of earned revenue at the end of December.

Therefore, the adjusting entry should be to debit Unearned Subscriptions for $4,200 (to reduce the liability since we've earned a portion of the revenue) and credit Subscriptions Income for $4,200 (to recognize the earned revenue). This is represented in choice B.

On November 1, 2013, Paige Turner Publishing Received $50,400 in Cash