Evaluating the Effect of Adjusting Unearned Subscriptions on Cash Flow

QUESTION

Evaluating the Effect of Adjusting Unearned Subscriptions on Cash Flows and Performance as a ManagerYou are the regional sales manager for Miga News Company. Miga is making adjusting entries for the year ended March 31, 2013. On September 1, 2012, customers in your region paid $24,000 cash for three-year magazine subscriptions beginning on that date. The magazines are published and mailed to customers monthly. These were the only subscription sales in your region during the year.Required:1. What amount should be reported as cash from operations on the statement of cash flows for the year ended March 31, 2013?2. What amount should be reported on the income statement for subscriptions revenue for the year ended March 31, 2013?3. What amount should be reported on the March 31, 2013, balance sheet for unearned subscriptions revenue?4. Give the adjusting entry at March 31, 2013, assuming that the subscriptions received on September 1, 2012, were recorded for the full amount in Unearned Subscriptions Revenue.5. The company expects your regions annual revenue target to be $6,000.a. Evaluate your regions performance, assuming that the revenue target is based on cash sales.b. Evaluate your regions performance, assuming that the revenue target is based on accrual accounting.
a) $24,000 is the cash flow from operations. In a cash flow from operations irrespective of period when it happens, it is more related to the period when it occurs. b) Income statement=$24000/36 months =$666.67 From Sep 1 2012 to March 31 st there are 6 months (we are ignoring March Payment) =$666.67*6 months=$4000 c) Unearned subscription revenue that is the revenue that is yet to be earned though cash has been received =$24000-$4000=$20,000 d) The adjusting

ry is Unearned Subscription Revenue (-L) $4000 Subscription Revenue (+SE) $4000 e) a) If revenue is based on cash sales then the revenue is $24000. The company is doing a great job. b) If revenue is based on accrual accounting then only $4000 which is below $24,000 thus the company needs to race upto the mark.

ANSWER:

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