Baker, Inc. received subscription payments for annual (one year) subsciptions to

Question

Baker, Inc. received subscription payments for annual (one year) subsciptions to its magazine. Payments are recorded as revenue when received. Amounts received but unearned at the end of each of the lat three years are shown below.
Unearned Revenues..............2009 2010 2011
$120,000 $150,000 $176,000
Baker failed to record the unearned revenues in each of the three years. The entry needed to correct the above errors is
a. Retained earnings.....................$150,000
Subscription Revenues............$26,000
Unearned Revenue.....................................$176,000
b. Retained Earnings...................$30,000
Subscription Revenues.................$26,000
Unearned Revenues......................................$56,000
c. Subscription Revenues..............$176,000
Unearned Revenues.......................................$176,000
d. Subscription Revenues..............$150,000
Retained Earnings.....................$26,000
Unearned Revenues........................................$176,000

Explanation / Answer

The double entry to correct it should be Dr Revenue Cr Unearned revenue The unearned revenue has increased from 150,000 to 176,000 from 2010 to 2011. Thus we need to credit unearned revenue by $26,000 to $176,000. The corresponding debit entry must be from Retained earning as we have mistook the unearned revenue as revenue recognised for previous years. Thus, the correct double entry should be Dr Subscription revenue 150,000 Dr Retained earning 26,000 Cr Unearned revenue 176,000 Hope this helps!

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.