University Survival Magazine is a small company run by two enterprising university students. They publish an issue of the magazine once a month from September through April. The magazine reports on various university activities and provides information such as how to get the best concert tickets, where the best pizza is sold for the best price, where the good study spots are located, and how to get library personnel to help you with your research assignments.
The magazine is sold either on a prepaid subscription basis for $12.00 for all eight issues, or for $2.00 per issue. During September, 2,000 subscriptions were sold. Up to the end of December, a total of 12,000 single copies were sold.
The owners also pre-sell advertising space in the magazine to local businesses that focus on the student market. During July and August, they signed up several businesses and collected $20,000 in advertising revenues. The advertisements are to be included in all eight issues of the magazine.
The cost of printing and distributing the first four issues of the magazine was $57,000, of which $46,000 was paid by the end of December. Miscellaneous other expenses totalling $2,000 were incurred and paid in cash.
Required:
a. Journalize all the transactions to the end of December.
b. Prepare any necessary adjusting entries on December 31.
c. Prepare a simple statement of earnings for the magazine, for the period from July to December.
d. Calculate the balance in the magazine's cash account on December 31.
e. Write a brief memo to the owners that explains why their net earnings are less than the net cash generated by their operations.