Subscriptions
Horse Country Living publishes a monthly magazine for which a 12-month subscription costs $30. All subscriptions require payment of the full $30 in advance. On August 1, the balance in the Subscriptions Received in Advance account was $40,500. During the month of August, the company sold 900 yearly subscriptions. After the adjusting entry at the end of August, the bal- ance in the Subscriptions Received in Advance account is $60,000.
Required
1. Prepare the journal entry to record the sale of the 900 yearly subscriptions during the month of August.
2. Prepare the adjusting journal entry on August 31.
3. Assume that the accountant made the correct entry during August to record the sale of the 900 subscriptions but forgot to make the adjusting entry on August 31. Would net income for August be overstated or understated? Explain your answer.
Customer Deposits
Wolfe & Wolfe collected $9,000 from a customer on April 1 and agreed to provide legal services during the next three months. Wolfe & Wolfe expects to provide an equal amount of services each month.
Required
1. Prepare the journal entry for the receipt of the customer deposit on April 1.
2. Prepare the adjusting entry on April 30.
3. What will be the effect on net income for April if the entry in (2) is not recorded?