A. Alex Rodriguez, a publishing Company, is preparing its Dec. 31, 2008, financial statements and must determine the proper accounting treatment for the following situations. A. Rodriguez sells subscriptions to several magazines for a 1-year, 2-year, or 3-year period. Cash receipts from subscribers are credited to magazine subscriptions collected in advance, and this account had a balance of $2,300,000 at Dec. 31, 2008 outstanding subscriptions at Dec. 31, 2008 expire as follows:
During 2009---$600,000
During 2010---$500,000
During 2011---$800,000
B. On Jan. 2, 2008, Rodriguez discontinued collision, fire, and theft coverage on its delivery vehicles and became self-insured for these risks. Actual losses of $50,000 during 2007 were charged to delivery expense. The 2006 premium for the discontinued coverage amounted to $80,000 and the controller wants to set up a reserve for self-insurance by a debit to delivery expense of $30,000 and a credit to the reserve for self-insurance of $30,000.
C. During Dec. 2008, a competitor company filed suit against Rodriguez for industrial espionage claiming $1,500,000 in damages. In the opinion of management and company counsel, it is reasonably possible that damages will be awarded to the plaintiff. However, the amount of potential damages awarded to the plaintiff cannot be reasonably estimated.
Instructions: For each of the above situation provide the journal entry that should be recorded as of Dec. 31, 2008, or explain why an entry should not be recorded.