Question

In: Accounting

CNC News Inc. sells one-year newspaper subscriptions for $72 cash each. Newspapers are delivered daily. The...

  1. CNC News Inc. sells one-year newspaper subscriptions for $72 cash each. Newspapers are delivered daily. The average cost of producing and delivering papers each month is $3 paid in cash at the time of delivery. CNC’s sales activity for the year follows:
  • On January 1, CNC sold 8,000 subscriptions.
  • On February 1, CNC sold 6,000 subscriptions.
  • On August 1, CNC sold 9,000 subscriptions.
  • On December 1, CNC sold 12,000 subscriptions.
  1. Prepare journal entries to record the subscription sales during the year.
  2. Prepare journal entries to record the revenue earned during the year and the related expense.

Solutions

Expert Solution

a.

Date Account Titles Debit Credit
Jan-01 Cash $         576,000
      Unearned Revenue $     576,000
Feb-01 Cash $         432,000
      Unearned Revenue $     432,000
Aug-01 Cash $         648,000
      Unearned Revenue $     648,000
Dec-01 Cash $         864,000
      Unearned Revenue $     864,000


b.

Account Titles Debit Credit
Unearned Revenue $      1,314,000
        Sales Revenue $ 1,314,000
Cost of Sales $         657,000
       Cash $     657,000

Revenue has been recorded for months expired in the year i.e. Unearned Revenue x Months expired / 12
=576000*12/12+432000*11/12+648000*5/12+864000*1/12

Monthly Sales revenue per subscription is $72/12 = $6 per subscription
Monthly cost = $3
Cost of sales = $3/$6 x 100 = 50%
Therefore related expense for current year = $1314000 x 50% = $657000


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