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:

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

   
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.

Answer 1

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