Alex Rodriguez Inc. a publishing company is preparing its December 31 2008 financial statements and must determine the proper accounting treatment for the following situations; they have retained your group to assist them in this task.(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 December 31 2008. Outstanding subscriptions at December 31 2008 expire as follows.During 2009—$600 000During 2010— 500 000During 2011— 800 000(b) On January 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) A suit for breach of contract seeking damages of $1 000 000 was filed by an author against Rodriguez on July 1 2008. 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 $300 000 and $700 000. No amount within this range is a better estimate of potential damages than any other amount.(d) During December 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.InstructionsFor each of the above situations provide the journal entry that should be recorded as of December 31 2008 or explain why an entry should not be recorded
