Professional Simulation In this simulation, you are asked to address questions related to the accounting for current liabilities.

Prepare responses to all parts.

Transcribed Image Text:

KWW Professional Simulation Current Liabilities Time Remaining 0 hours 20 minutes Directions Station Joumal Entries Explanation Resource Alex Rodriguez Inc., a publishing company, is preparing its December 31, 2014, 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 December 31, 2014. Outstanding subscriptions at December 31, 2014, expire as follows. During 2015-$600,000 During 2016-500,000 During 2017-800,000 (b) On January 2, 2014, Rodriguez discontinued collision, fire, and theft coverage on its delivery vehicles and became self-insured for these risks. Actual losses of $50,000 during 2014 were charged to delivery expense. The 2013 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, 2014. The company's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the court's award to the plaintiff is based on the following amounts and probabilities: $300,000 (probability of 40%) and $700,000 (probability of 60%). (d) The following items are listed as liabilities on the statement of financial position on December 31, 2014. Accounts payable $ 420,000 Notes payable Bonds payable 750,000 2,250,000 The accounts payable represent obligations to suppliers that were due in January 2015. The notes payable mature on various dates during 2015. The bonds payable mature on July 1, 2015. Directions Stuation Journal Entries Explanation Resources For situations (a), (b), and (c), prepare the journal entry that should be recorded as of December 31, 2014. Direction Stanton Joumal Entries Explanation Prepare a brief memorandum explaining the general rule for classifying a liability as current or non-current. Explain the conditions under which notes payable might be classified as current or non-current.