On April 1, Santa Fe, Inc. paid Griffith Publishing Company $2,268 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately.

What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

Question

Business

Poole

13 September, 22:52

On April 1, Santa Fe, Inc. paid Griffith Publishing Company $2,268 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately.

What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

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Answers (1)

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Erica Daugherty · Answer 1

The amount of prepaid subscription in Santa, Fe's account is $1701

Explanation:

By the end of the year, that is 31st December of the first year, Griffith would have delivered 9 months magazines to Santa Fe, Inc, which implies that the number of months whose magazines have not been made available is 27 months (36 months minus 9 months).

In addition, the amount of prepaid subscription at the end of the year is calculated below:

Subscription prepaid balance = 27/36*$2,268

=$1701

This means that the magazine expense for the current year is $567 ($2268 minus $1701)