A is corrent. The 12/31/Y2 balance of deferred subscription revenue should reflect the liability for subscriptions still outstanding at that time. The 12/31/Y1 deferred revenue ($750,000) would have been earned when the April 15 directory was mailed, and therefore is no longer a liability. The cash collected through the September 30 cutoff date (9/12 x $3,600,000 = $2,700,000) would also have been earned when the April 15 and October 15 directories were mailed (note that the cash was received evenly throughout the year). However, the cash collected after September 30 (3/12 x $3,600,000 = $900,000) will not be earned until the 4/15/Y3 directory is mailed, and therefore is deferred revenue at 12/31/Y2.
B is incorrect. The 12/31/Y2 balance of deferred subscription revenue should reflect the liability for subscriptions still outstanding at that time. The 12/31/Y1 deferred revenue ($750,000) would have been earned when the April 15 directory was mailed, and therefore is no longer a liability. The cash collected through the September 30 cutoff date (9/12 x $3,600,000 = $2,700,000) would also have been earned when the April 15 and October 15 directories were mailed (note that the cash was received evenly throughout the year). However, the cash collected after September 30 (3/12 x $3,600,000 = $900,000) will not be earned until the 4/15/Y3 directory is mailed, and therefore is deferred revenue at 12/31/Y2.
C is incorrect. The 12/31/Y2 balance of deferred subscription revenue should reflect the liability for subscriptions still outstanding at that time. The 12/31/Y1 deferred revenue ($750,000) would have been earned when the April 15 directory was mailed, and therefore is no longer a liability. The cash collected through the September 30 cutoff date (9/12 x $3,600,000 = $2,700,000) would also have been earned when the April 15 and October 15 directories were mailed (note that the cash was received evenly throughout the year). However, the cash collected after September 30 (3/12 x $3,600,000 = $900,000) will not be earned until the 4/15/Y3 directory is mailed, and therefore is deferred revenue at 12/31/Y2.
D is incorrect. The 12/31/Y2 balance of deferred subscription revenue should reflect the liability for subscriptions still outstanding at that time. The 12/31/Y1 deferred revenue ($750,000) would have been earned when the April 15 directory was mailed, and therefore is no longer a liability. The cash collected through the September 30 cutoff date (9/12 x $3,600,000 = $2,700,000) would also have been earned when the April 15 and October 15 directories were mailed (note that the cash was received evenly throughout the year). However, the cash collected after September 30 (3/12 x $3,600,000 = $900,000) will not be earned until the 4/15/Y3 directory is mailed, and therefore is deferred revenue at 12/31/Y2.
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