Question

When does SurveyMonkey recognize revenue from its Platinum annual subscription plans? SurveyMonkey is an online survey company that allows its subscribers to customize and administer surveys. It recently made the news for raising another $250 million in equity funding (“SurveyMonkey is worth $2 billion after new $250 million fundraising round, Fortune, December 15, 2014.) (Note: SurveyMonkey is privately held. The founder says the company will not go public because the related costs of being a publicly-held organization are too high.)

SurveyMonkey’s basic services are free and include the ability to customize a survey containing a maximum 10 questions for up to 100 responses.

Premium plans are also available through SurveyMonkey. Features of the Platinum SurveyMonkey plan include unlimited questions, unlimited number of responses, custom logos, and phone support. The Platinum plan costs $65 per month and is billed annually on the starting date of the plan for a total cost of $780.

Questions 1. Assume that Black Squirrel Design, Inc., signs up for the Platinum plan at SurveyMonkey on December 1, 2015. The customer pays the entire $780 on March 1. How will SurveyMonkey record this customer’s payment? What asset and/or liability accounts are affected?

2. Continue the same example from Item #1. If SurveyMonkey has a December 31 year end, how much revenue related to the Platinum plan purchased by Black Squirrel Design will SurveyMonkey recognize at December 31, 2015? How much revenue from the Black Squirrel Design purchase will be recognized during 2016?

Answer 1

1. Survey Monkey will bill Black Squirrel Design, Inc. for the entire amount of $780 when it signs up on December 1, 2015 by debiting accounts receivable and crediting service revenue. On March 1 when Black Squirrel pays, cash will be debited for $780 and accounts receivable credited.

2. If Survey Monkey has a December 31 year end, it will recognize revenue for 1 month $780 x 1/12 = $65 at December 31, 2015. The remaining $780 - $65 = $715 will be considered as unearned revenue. An adjusting entry will be recorded for recognizing the unearned revenue by debiting service revenue and crediting unearned revenue by $715.

The revenue recognized during 2016 will be for the remaining 11 months $715.