On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the first year

Debit unearned fees $516 and credit fees earned $516

Explanation:

In this question, we are asked to state the adjusting entry that should be recorded by Garcia publishing on 31st December of the year.

To solve this, firstly, we need to calculate the amount of subscription per year.

From the question, we can identify that 1,548 was received for 36 months. This means that the amount received per month will be; 1548/36 = $43

Now since we are to calculate for 12 months, this is going to be at a cost of 12 * 43 = $516

If we recall, the unearned revenue was credit, now we will need to debit it. This means that we will be crediting fees earned account.

Thus, the adjusting entry will be;

Debit unearned fees $516 and credit fees earned $516

Adjusting entries required

Debit Unearned fees $1,161

Credit Revenue Account $1,161

Explanation:

When a fee is received in advance for a service yet to be rendered, the revenue for such fee is said to be unearned. The entries required are

Debit Cash account and Credit Unearned fees or deferred revenue.

As the service is performed and the revenue is earned, debit Unearned fees and credit revenue.

Hence revenue earned between April and December

= 9/12 * $1,548

= $1,161