Accounting: What the Numbers Mean, 8th edition; Marshall, McManus and Viele, Irwin McGraw-Hill
Unearned revenues---subscription fees
Evans Ltd. publishes a monthly newsletter for retail marketing managers and requires its subscribers to pay $50 in advance for a one year subscription. During the month of September 2009, Evans Ltd. Sold 200 one year subscriptions and received payments in advance from all new subscribers. The only 120 of the new subscribers paid their fees in time to receive the September newsletter; the other subscriptions began with the October newsletter.
A) Use the horizontal model to record the effects of the following items:
1 Subscription fees received in advance during September 2009
2 Subscription revenue earned during September 2009.
B) Calculate the amount of subscription revenue earned by Evans ltd. During the year ended December 31 2009, for these 200 subscriptions.
Optional continuation of problem lifetime subscription offer (Note: This is an analytical assignment involving the use of present value tables and accounting estimates. Only the first sentence in problem applies to this continuation of the problem) Evans Ltd. Is now considering the possibility of offering a lifetime membership option to its subscribers. Under this proposal, subscribers could receive the monthly newsletter throughout their lives by paying a flat fee of $600. The one year subscription rate of $50 would continue to apply to new and existing subscribers who choose to subscribe on an annual basis. Assume that the average age of Evans Ltd's current subscribers is 38 and their average life expectancy is 78 years. Evans Ltd.'s current subscriber is 38, and their average life expectancy is 78 years. Evans Ltd.'s average interest rate on long term debt is 12%
C) Using the information given, determined whether it would be profitable for Evans Ltd. to sell lifetime subscriptions
D) What additional factors should Evans Ltd. consider in determining whether to offer a lifetime membership option? Explain your answer as specifically as possible.