Question

Write a paragraph to explain why unearned revenues are liabilities instead of revenues. In your explanation, use the following actual example: The World Star , a national newspaper, collects cash from subscribers in advance and later delivers newspapers to subscribers over a one-year period. Explain what happens to the unearned revenue over the course of a year as The World Star delivers papers to subscribers. Into what account does the earned subscription revenue go as The World Star delivers papers? Give the journal entries that The World Star would make to (a) collect $60,000 of subscription revenue in advance and (b) record earning$40,000 of subscription revenue.

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In this exercise, we are asked to explain why unearned revenues are liabilities instead of revenues and what happens to the unearned revenue over the course of a year as The World Star delivers papers to subscribers. In addition, we are also asked to give the journal entries for the transactions given in the exercise.

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