Chapter 10, Problem 10.6E

Determining and Recording the Financial Statement Effects of Unearned Subscription Revenue

Condé Nast is a publisher of magazines. Its accounting policy for subscriptions follows:

Revenues

Sales of our magazine subscriptions are deferred (as unearned revenue) and recognized as revenues proportionately over the subscription period.

Assume that Condé Nast (a) collected $420 million in 2015 for magazines that will be delivered later in 2015 and 2016, and (b) delivered $204 million worth of magazines on these subscriptions in 2015.

Required:

1. 1. Using the information given, indicate the accounts, amounts, and accounting equation effects (+ for increase, − for decrease, and NE for no effect) of transactions (a) and (b).
2. 2. Using the information given, prepare the journal entries that would be recorded in 2015 and 2016.