Horse Country Living publishes a monthly magazine for which a 12-month subscription costs $30. All subscriptions require payment of the full $30 in advance. On August 1, 2010, the balance in the Subscriptions Received in Advance account was $40,500. During the month of August, the company sold 900 yearly subscriptions. After the adjustment at the end of August, the balance in the Subscriptions Received in Advance account is $60,000.
1. Identify and analyze the transaction to record the sale of the 900 yearly subscriptions during the month of August.
2. Identify and analyze the adjustment on August 31.
3. Assume that the accountant made the correct entry during August to record the sale of the 900 subscriptions but forgot to make the adjustment on August 31. Would net income for August be overstated or understated? Explain your answer.