Choji's Health is a monthly magazine that has been on the market for $24$ months. It currently has a circulation of $2\mathrm{.}4$ million copies. Negotiations are underway to obtain a bank loan in order to update the magazine's facilities. Choji's Health is producing close to capacity and expects to grow at an average $15\%$ per year over the next $3$ years.

After reviewing the financial statements for Choji's Health, Mr$.$ Meyers, the bank loan officer, has indicated that a loan could be offered to Choji's Health only if it could INCREASE its current ratio and DECREASE its debt to equity ratio to a specified level. Mrs$.$ Peterson, the marketing Manager of Choji's Health, has devised a plan to meet these requirements of the bank loan officer. Mrs$.$ Peterson indicates that an advertising campaign can be initiated to immediately increase circulation. The potential customers would be contacted after the purchase of another magazine's mailing list. The campaign would include the following...

$1.$ An offer to subscribe to Choji's Health at three fourths the normal price.

$2.$ A special offer to all new subscribers to receive the most current world atlas whenever requested at a guaranteed price of $$2.$

$3.$ An unconditional guarantee that any subscriber will receive a full refund if dissatisfied with Choji's Health Magazine.

Although the offer of a full refund is risky, Mrs$.$ Peterson claims that few people will ask for a refund after receiving half of their subscription issues. Mrs$.$ Peterson notes that other magazine companies have tried this sales promotion technique and experienced great success. Their average cancellation rate was $25\%.$ On average, each company increased its initital circulation threshold and in the long run increased circulation to twice that which existed before the promotion. In addition, $60\%$ of the new subscribers are expected to take advantage of the atlas premium. Mrs$.$ Peterson feels confident that the increased subscriptions from the advertising campaign will increase the current ratio and decrease the debt to equity ratio.

As the controller of Choji's Health, you must give your opinion of the proposed plan.

QUESTION $1$: When should revenue from the new subscriptions be recognized? $($Describe in words, and then give an example entry$)$

QUESTION $2$: How would you classify the estimated sales returns stemming from the unconditional guarantee? $($Describe in words, and also give an example entry$)$

QUESTION $3$: How should the atlas premium be recorded? $($Describe using words, and then using an example entry using XX as your numbers$)$

QUESTION $4$: Does the proposed plan achieve the goals of increasing the current ratio and decreasing the debt to equity ratio? $($Describe using words, no entry needed$)$