Kingbird Inc., a publishing company is preparing its December 31, 2020 financial statements and must determine the proper accounting treatment for the following situations. Kingbird has retained your firm to help with this task 1. Kingbird sells subscriptions to several magazines for a one-year, two-year, or three-year period. Cash receipts from subscribers are credited to Unearned Subscriptions Revenue and this account had a balance of $2.80 million at December 31, 2020. Outstanding subscriptions at December 31, 2020, expire as follows: 2. 3. During $500.000 2021 During 600,000 2022 During 1,150,000 2023 On January 2, 2020, Kingbird discontinued collision, fire and theft coverage on its delivery vehicles and became self- insured for these risks. Actual losses of $50,000 during 2020 were charged to Delivery Expense. The 2019 premium for the discontinued coverage amounted to $80,000 and the controller wants to accrue a reserve for self-insurance by a debit to Freight-out of $30,000 and a credit to the Reserve for Self-insurance of $30,000. A suit for breach of contract seeking damages of $1 million was filed by an author against Kingbird on July 1, 2020. Kingbird's legal counsel believes that an unfavourable outcome is likely. A reasonable estimate of the court's award to the plaintiff is between $350,000 and $900.000. No amount within this range is a better estimate of potential damages than any other amount. Kingbird's main supplier, Bartlett Ltd., has been experiencing liquidity problems over the past three quarters. In order for Bartlett's bank to continue to extend credit Bartlett has asked and Kingbird has guaranteed its indebtedness. The bank loan stands at $600.000 at December 31, 2020, but the guarantee extends to the full credit facility of $900,000. There is currently no indication that Bartlett will default on any of its bank loans. Kingbird's landlord has informed the company that its warehouse lease will not be renewed when it expires in six months. Kingbird entered into a $2-million contract on December 15, 2020 with Complete Construction Company Ltd., committing Kingbird to building an office and warehouse facility. During December 2020. a competitor company filed suit against Kingbird for industrial espionage, claiming $1.5 million 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. 5. 6. (21) For each of the above situations, provide the journal entry that should be recorded as at December 31, 2020, under ASPE. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts.) Debit Credit No. Account Titles and Explanation 1. 1. (To record subscriptions earned during 2020) 2. 3. (To record estimated minimum damages on breach-of-contract litigation) 5. 6
