Ramirez Inc a publishing company is preparing its

December 31 #1206

Ramirez Inc., a publishing company, is preparing its December 31, 2014 financial statements
and must determine the proper accounting treatment for the following situations. The company
has retained your firm to help with this task.

1. Ramirez 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 $2.3 million 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

2. On January 2, 2014, Ramirez 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.

3. A suit for breach of contract seeking damages of $1 million was filed by an author against
Ramirez on July 1, 2014. The company's legal counsel believes that an unfavourable outcome
is likely. A reasonable estimate of the court's award to the plaintiff is between $300,000 and
$700,000. No amount within this range is a better estimate of potential damages than any other
amount.

4. Ramirez's main supplier, Bartlett Ltd., has been experiencing liquidity problems over the last
three quarters. In order for Bartlett's bank to continue to extend credit, Bartlett has asked
Ramirez to guarantee its indebtedness. The bank loan stands at $500,000 at December 31,
2014, but the guarantee extends to the full credit facility of $900,000.

5. Ramirez's landlord has informed the company that its warehouse lease will not be renewed
when it expires in six months' time. Ramirez entered into a $2-million contract on December 15,
2014, with Complete Construction Company Ltd., committing the company to building an office
and warehouse facility.

6. During December 2014, a competitor company filed suit against Ramirez 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.
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 Instructions

(a) For each of the above situations, provide the journal entry that should be recorded as at
December 31, 2014, under ASPE, or explain why an entry should not be recorded. For each
situation, identify what disclosures are required, if any.

(b) Would your answer to any of the above situations change if Ramirez followed current IFRS
standards?

Ramirez Inc a publishing company is preparing its December 31

ANSWER
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