reenlaw Inc., a publishing company, is preparing its December 31, 2019, financial statements and must determine the proper accounting treatment for each of the following situations: 1. Greenlaw sells subscriptions to several magazines for a 1, 2, or 3-year period. Cash receipts from subscribers are credited to Unearned Revenue: Magazine Subscriptions, and this account had a balance of $2,500,000 at December 31, 2019. Outstanding subscriptions at December 31, 2019, expire as follows: During 2020—$600,000 During 2021—$900,000 During 2022—$400,000 2. On January 4, 2019, Greenlaw discontinued collision, fire, and theft coverage on its delivery vehicles and became self-insured for these risks. Actual losses of $45,000 during 2019 were charged to delivery expense. The 2018 premium for the discontinued coverage amounted to $100,000, and the controller wants to set up a reserve for self-insurance by a debit to Delivery Expense of $55,000 and a credit to Reserve for Self-Insurance of $55,000. 3. A suit for breach of contract seeking damages of $1,000,000 was filed by an author against Greenlaw on July 3, 2019. The company’s legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the court’s award to the plaintiff is in the range between $100,000 and $500,000. No amount within this range is a better estimate of potential damages than any other amount. 4. During December 2019 a competitor company filed suit against Greenlaw for industrial espionage claiming $2,000,000 in damages. In the opinion of management and company counsel, it is reasonably possible that damages will be awarded to the plaintiff, and the amount of potential damages awarded to the plaintiff is estimated to be $1,500,000. Required: 1. For each of the preceding situations, prepare the journal entry that should be recorded as of December 31, 2019, or explain why an entry should not be recorded. Show supporting computations in good form. 2. How might your answers to the breach of contract litigation and the industrial espionage litigation change if Greenlaw used IFRS?

reenlaw Inc., a publishing company, is preparing its December 31, 2019, financial statements and must determine the proper accounting treatment for each of the following situations: 1. Greenlaw sells subscriptions to several magazines for a 1, 2, or 3-year period. Cash receipts from subscribers are credited to Unearned Revenue: Magazine Subscriptions, and this account had a balance of $2,500,000 at December 31, 2019. Outstanding subscriptions at December 31, 2019, expire as follows: During 2020—$600,000 During 2021—$900,000 During 2022—$400,000 2. On January 4, 2019, Greenlaw discontinued collision, fire, and theft coverage on its delivery vehicles and became self-insured for these risks. Actual losses of $45,000 during 2019 were charged to delivery expense. The 2018 premium for the discontinued coverage amounted to $100,000, and the controller wants to set up a reserve for self-insurance by a debit to Delivery Expense of $55,000 and a credit to Reserve for Self-Insurance of $55,000. 3. A suit for breach of contract seeking damages of $1,000,000 was filed by an author against Greenlaw on July 3, 2019. The company’s legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the court’s award to the plaintiff is in the range between $100,000 and $500,000. No amount within this range is a better estimate of potential damages than any other amount. 4. During December 2019 a competitor company filed suit against Greenlaw for industrial espionage claiming $2,000,000 in damages. In the opinion of management and company counsel, it is reasonably possible that damages will be awarded to the plaintiff, and the amount of potential damages awarded to the plaintiff is estimated to be $1,500,000. Required: 1. For each of the preceding situations, prepare the journal entry that should be recorded as of December 31, 2019, or explain why an entry should not be recorded. Show supporting computations in good form. 2. How might your answers to the breach of contract litigation and the industrial espionage litigation change if Greenlaw used IFRS?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter9: Current Liabilities And Contingent Obligations

Section: Chapter Questions

Problem 13P

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Greenlaw Inc., a publishing company, is preparing its December 31, 2019, financial statements and must determine the proper accounting treatment for each of the following situations: 1. Greenlaw sells subscriptions to several magazines for a 1, 2, or 3-year period. Cash receipts from subscribers are credited to Unearned Revenue: Magazine Subscriptions, and this account had a balance of $2,500,000 at December 31, 2019. Outstanding subscriptions at December 31, 2019, expire as follows: During 2020—$600,000 During 2021—$900,000 During 2022—$400,000 2. On January 4, 2019, Greenlaw discontinued collision, fire, and theft coverage on its delivery vehicles and became self-insured for these risks. Actual losses of $45,000 during 2019 were charged to delivery expense. The 2018 premium for the discontinued coverage amounted to $100,000, and the controller wants to set up a reserve for self-insurance by a debit to Delivery Expense of $55,000 and a credit to Reserve for Self-Insurance of $55,000. 3. A suit for breach of contract seeking damages of $1,000,000 was filed by an author against Greenlaw on July 3, 2019. The company’s legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the court’s award to the plaintiff is in the range between $100,000 and $500,000. No amount within this range is a better estimate of potential damages than any other amount. 4. During December 2019 a competitor company filed suit against Greenlaw for industrial espionage claiming $2,000,000 in damages. In the opinion of management and company counsel, it is reasonably possible that damages will be awarded to the plaintiff, and the amount of potential damages awarded to the plaintiff is estimated to be $1,500,000. Required: 1. For each of the preceding situations, prepare the journal entry that should be recorded as of December 31, 2019, or explain why an entry should not be recorded. Show supporting computations in good form. 2. How might your answers to the breach of contract litigation and the industrial espionage litigation change if Greenlaw used IFRS?

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How might your answers to the breach of contract litigation and the industrial espionage litigation change if Greenlaw used IFRS?

Complete the statement below with regard to the breach-of-contract litigation.

If an unfavorable outcome is probable and there exists a range of estimates with no amount in the range more likely than any other amount in the range, IFRS require that ___ of the range be used to measure the liability.

Complete the statement below with regard to the industrial espionage litigation.

With regard to the industrial espionage litigation, under IFRS Greenlaw would record a debit to ___ in the amount of ___ and a credit to .

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