The company operates a travel club through which subscribers can access low rates for air fares, hotel rooms, and rental cars. Each year, subscribers pay a refundable fee of $1,000 that allows them access to the company’s services for that year. A customer may receive a full refund of this fee at any time during the year with no questions asked. The cost to service a customer’s account for a year is $120; these costs are incurred in cash evenly throughout the year. The company can reliably estimate that 30% of customers will ask for a full refund of their subscription fee. On January 1, the company received payments from 1,500 subscribers. Make the journal entries necessary to record
(1) The receipt of the subscription fees from these 1,500 customers,
(2) The partial recognition of the subscription fees as revenue after the first month (with the associated service cost for the first month), and
(3) Final recognition of revenue (and associated service cost) for the month of December as well as the payment of full refunds to 30% of the customers (as expected).

  • CreatedApril 07, 2012
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