Q3SE-b - Horngren'S Financial And Managerial Accounting

Question

Question :Seacoast Magazine sells subscriptions for $36 for 18 issues. The company collects cash in advance and then mails out the magazines to subscribers each month. Apply the revenue recognition principle to determine a. when Seacoast Magazine should record revenue for this situation. b. the amount of revenue Seacoast Magazine should record for eight issues.

Step-by-Step Solution

Answer

Answer

The company should recognize the revenue after each successive issue to the customers. 

Step 1: Explanation of Revenue Recording

The company has received the advance amount for 18 issues in the given case. Hence it will be recorded as unearned revenue. For eight issues, revenue will be recorded for eight issues only.

Step 2: Calculation of Revenue

Revenue is calculated as follows: 

 $$\begin{gathered} \mathbf{\text{Revenue=amount received×}}\frac{\mathbf{N}\mathbf{u}\mathbf{m}\mathbf{b}\mathbf{e}\mathbf{r}\mathbf{ }\mathbf{o}\mathbf{f}\mathbf{ }\mathbf{i}\mathbf{s}\mathbf{s}\mathbf{u}\mathbf{e}\mathbf{s}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{i}\mathbf{s}\mathbf{s}\mathbf{s}\mathbf{u}\mathbf{e}\mathbf{s}} \\ \mathbf{\text{ =\$36×}}\frac{\mathbf{8}}{\mathbf{18}} \\ \mathbf{\text{ =\$16}} \end{gathered}$$

Thus, revenue equals $16