Basic revenue recognition is a critical concept for students. This simple case is a great way to start the discussion of unearned revenue. I introduce the basic definition of revenue (i.e. a benefit for providing goods or services to customers) and then ask students to come up with their own solution for accounting for this event. It is interesting to hear their answers and makes for a great opener into discussing unearned revenue. The critical thing for students to understand is that revenue can be either an increase in assets or a decrease in liabilities. In both cases, the stockholders benefit.
Learning Objectives: IFAB 3-3, FFAC 2-7, Survey 2-7
Implementation Ideas: 1) Students work the case in groups of 3-4 and then we have a class discussion (class time: 5-10 minutes) , 2) Assign case out-of-class and then discuss in class (class time: 5 minutes)
Handouts and Solution for Case #3 available on Resources Page
Did they earn it?
On September 15, 2019, Karen Furman purchased a subscription to Fitness magazine for her sister’s birthday. She paid $12 for a one-year subscription to the Meredith Corporation, the company that publishes Fitness, American Baby, Better Homes and Gardens, The Ladies Home Journal, and several other magazines. The company also owns 17 television stations. Karen’s sister will receive her first issue of the magazine in October.
How should Meredith Corporation account for the receipt of this cash? How much revenue should Meredith Corporation report on its December 31, 2019, income statement?