Park Industries, a cable equipment manufacturer and TV subscription operator has had its fair share of problems lately with $12 million of their deferred subscription costs bring terminated and $4 million in deemed uncollectible accounts which have not been written off yet. They have a 50/50 chance that they will be in business after the next two years.

They have also just found out that one of their electronic parts is defective and will need correction. Warranty expenses are estimated to range from $2 million to $6 million. The inventory of the part ($10 million) is obsolete but $1 million is salvageable or the parts in inventory can be rebuilt at a cost of $2 million ( selling price of the inventory on hand would then be $8 million, with 20% to market and ship the product, and normal profit being 5% of the selling price). If the company decided to scrap the inventory, Park would be able to manufacture replacement parts for $6 million (not including marketing costs, shipping costs or normal profit)

Park is also currently in the middle of a dispute for not completing production for a corporate contract. Although the suit is for $2 million the company lawyers believe there could be a $1 million settlement by the end of the court dealings.

Parks auditors have determined $7 million to be material to the financial statements (overstatement of income before taxes). Management has prepared their analysis of the losses they feel are necessary to record in their year-end financial statements

Expected Warranty Expense- 2,000,000

Inventory write down ( Lower of Cost or Market)- 2,000,000

Total write offs and losses- 11,000,000

No entry required for legal dispute since judge has not made a ruling.

Required: Prepare your own analysis of the entries required for Parks year-end financial statements. Assume that the above estimates have not been recorded yet. Explain your rationale, and where you feel Parks management did not use proper judgment. Prepare the journal entries for each estimate.

• Hint, there are 5 estimate areas to analyze (ie. Estimate ranges)