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Dreighton Engineering Group receives royalties on a technical manual written by

ID: 2533302 • Letter: D

Question

Dreighton Engineering Group receives royalties on a technical manual written by two of its engineers and sold to William B. Irving Publishing, Inc. Royalties are 10% of net sales, receivable on October 1 for sales in January through June and on April 1 for sales in July through December of the prior year. Sales of the manual began in July 2017, and Dreighton accrued royalty revenue of $42,200 at December 31, 2017, as follows:

   
Dreighton received royalties of $50,000 on April 1, 2018, and $54,000 on October 1, 2018. Irving indicated to Dreighton on December 31 that book sales subject to royalties for the second half of 2018 are expected to be $640,000.

Required:
1. Prepare any necessary journal entry related to royalty revenue for 2018 and record adjustment, if any, made to retained earnings or to the 2017 financial statements.

Receivable—royalty revenue 42,200 Royalty revenue 42,200

Explanation / Answer

Date

Accounts Title & Explanation

Debit

Credit

April 1, 2018

Cash

$50000

      Receivable—royalty revenue

$42200

      Royalty revenue

$7800

(For recording receipts of royalty)

Oct. 1, 2018

Cash

$54000

      Royalty revenue

$54000

(For recording receipts of royalty revenue)

Dec. 31, 2018

Receivable—royalty revenue

$64000

      Royalty revenue ($640000 * 10%)

$64000

(For recording royalty revenue on Dec. 31)

Dec. 31, 2017

No Journal Entry Required

Date

Accounts Title & Explanation

Debit

Credit

April 1, 2018

Cash

$50000

      Receivable—royalty revenue

$42200

      Royalty revenue

$7800

(For recording receipts of royalty)

Oct. 1, 2018

Cash

$54000

      Royalty revenue

$54000

(For recording receipts of royalty revenue)

Dec. 31, 2018

Receivable—royalty revenue

$64000

      Royalty revenue ($640000 * 10%)

$64000

(For recording royalty revenue on Dec. 31)

Dec. 31, 2017

No Journal Entry Required

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