Question

In November and December Year 1, a newly organized magazine publisher received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January Year 2 issue. What amount should they report in the Year 1 income statement for subscription revenue if none of the magazines were delivered in Year 1?

Answer 1

Based on the information available in the question, we can summarize the data as follows:-

Validity of the subscriptions :- 3 years.

Subscription beginning period :- January Year 2

Amount received :- $72,000

The income statements are prepared using the Accrual concept of Accounting. Under the accrual principal, the income statement of a company reflects the revenues earned by the company or the expenses spent for that period. The revenues for the company are recorded as and when they are earned and the services has been performed. Similarly, expenses are recognized when the actual benefit from it consumed.

Based on the above explanation, the magazine provider would report "0" revenues in its income statement during year 1 because the subscriptions are valid from Year 2 only and none of it is earned this year.

Hence, the amount that the magazine publisher should report is "0" in the Year 1 income statement.