On 1012017 48000 of annual magazine subscriptions were sold

On 10/1/2017, $48000 of annual magazine subscriptions were sold by Train Hobbies Monthly. The subscribed magazines are delivered on the 1st of each month, beginning on 10/1/2017. The total cost of the subscribed magazines is $21000, or $1750 per month. Determine the amount of revenue and the cost of the magazines to be recognized during 2017 and 2018, respectively. How much profit will the company recognize during 2017 and 2018? The financial year end is on 12/31.

Solution

Solution :

Revenue to be recognized for 2017 = $48,000/12*3 = $12,000

Cost of magazines to be recognized during 2017 = $1750 * 3 = $5,250

Revenue to be recognized for 2018 = $48,000/12*9 = $36,000

Cost of magazines to be recognized during 2018 = $1750 * 9 = $15,750

Profit to be recognized in 2017 = $12,000 - $5,250 = $6,750

Profit to be recognized in 2018 = $36,000 - $15,750 = $20,250