Question:
A New York City daily newspaper called “Manhattan Today” charges an annual subscription fee of $150.
Customers prepay their subscriptions, and receive 260 issues for an annual subscription. To attract more
subscribers, the company offered new subscribers a coupon to receive a 40 percent discount on a ride
through Central Park on a horse-drawn carriage. The list price of a carriage ride is $130 per hour. The
company estimates that approximately
30% of the vouchers will be redeemed.
Required:
1. Can Manhattan Today recognize any of the $150 subscription fee as revenue upon receipt? Explain.
2. When will Manhattan Today recognize revenue associated with the $150 subscription price?
3. What separate performance obligations exist in this contract?
4. Prepare the journal entry to recognize sale of one new subscription, clearly identifying the revenue or
unearned revenue associated with each distinct performance obligation.
Answer:
Requirement 1
No, Manhattan Today cannot recognize revenue upon receipt of the subscription fee. Even though
Manhattan Today received payments from customers for an annual subscription, the subscription
activity does not transfer goods or services to customers. Therefore, the annual fee is viewed as a
prepayment for future delivery of goods or services, and would be recognized as unearned revenue when
received.
Requirement 2
Revenue for separate performance obligations will be recognized when those performance obligations
are satisfied. The total $150 subscription price potentially must be allocated among two performance
obligations: delivery of newspapers and coupon exercise (or expiration).
A New York City daily newspaper called “Manhattan Today” charges an annual subscription fee of $150.
Customers prepay their subscriptions, and receive 260 issues for an annual subscription. To attract more
subscribers, the company offered new subscribers a coupon to receive a 40 percent discount on a ride
through Central Park on a horse-drawn carriage. The list price of a carriage ride is $130 per hour. The
company estimates that approximately
30% of the vouchers will be redeemed.
Required:
1. Can Manhattan Today recognize any of the $150 subscription fee as revenue upon receipt? Explain.
2. When will Manhattan Today recognize revenue associated with the $150 subscription price?
3. What separate performance obligations exist in this contract?
4. Prepare the journal entry to recognize sale of one new subscription, clearly identifying the revenue or
unearned revenue associated with each distinct performance obligation.
Answer:
Requirement 1
No, Manhattan Today cannot recognize revenue upon receipt of the subscription fee. Even though
Manhattan Today received payments from customers for an annual subscription, the subscription
activity does not transfer goods or services to customers. Therefore, the annual fee is viewed as a
prepayment for future delivery of goods or services, and would be recognized as unearned revenue when
received.
Requirement 2
Revenue for separate performance obligations will be recognized when those performance obligations
are satisfied. The total $150 subscription price potentially must be allocated among two performance
obligations: delivery of newspapers and coupon exercise (or expiration).
