Moreno Company publishes a monthly sports magazine, Fishing Preview. Subscriptions to the magazine cost $20 per year. During November 2020, Moreno sells 15,000 subscriptions beginning with the December issue. Moreno prepares financial statements quarterly and recognizes subscription revenue at the end of the quarter. The company uses the accounts Unearned Subscription Revenue and Subscription Revenue.
A. Prepare the entry in November for the receipt of the subscriptions
B. Prepare the adjusting entry at December 31, 2020, to record sales revenue recognized in December 2020.
C. Prepare the adjusting entry at March 31, 2021, to record sales revenue recognized in the first quarter of 2021.

Answer and Explanation:

The journal entries are shown below:

A. Cash   $300,00

           To Unearned Subscription Revenue  $300,000

(Being the receipts of the subscription is recorded)

For recording this we debited the cash as it increased the assets and also increased the liability so unearned subscription revenue is credited

B.  Unearned Subscription Revenue $300,000

             To Subscription Revenue $300,000

(Being the sales revenue is recorded)

For recording this we debited the unearned subscription revenue as it reduced the liabilities and at the same time it increase the revenue so the subscription revenue is credited

C. Unearned Subscription Revenue $75,000

             To Subscription Revenue $75,000

(Being the sales revenue is recorded)

The computation is shown below:

= $300,000 × 3 months ÷ 12 months

= $75,000

For recording this we debited the unearned subscription revenue as it reduced the liabilities and at the same time it increase the revenue so the subscription revenue is credited

The three months are calculated from December 31 to March 31

answer; rapid growth in buyer demand and high buyer switching cost;