On October 1, 2018, $16,000 of Annual Magazine Subscriptions Were

question 49

Essay

On October 1, 2018, $16,000 of annual magazine subscriptions were sold by Boating Monthly. The subscribed magazines are delivered on the first day of each month beginning on October 1, 2018. The total cost of the subscribed magazines is $6,000 or $500 per monthly delivery. Using the four criteria necessary for revenue recognition, present an argument for not recognizing $10,000 of revenue during 2018.

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Definitions:

Direct Labor Cost

The total amount of money a company spends on wages for employees who are directly involved in the manufacturing of products or providing services.

Absorption Costing

An accounting method that includes both variable and fixed manufacturing costs in the cost of a product.

Net Operating Income

The profit realized from a business's operations after subtracting operating expenses but before deducting taxes and interest.

Variable Costing

A cost accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs and treats fixed manufacturing overhead as a period expense.