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Three programmers at Feenix Computer Storage, Inc., write an operating systems control manual for Hill-McGraw Publishing, Inc., for which Feenix receives royalties equal to 12% of net sales. Royalties are payable annually on February 1 for sales the previous year. The editor indicated to Feenix on December 31, 2018, that book sales subject to royalties for the year just ended are expected to be $330,000. Accordingly, Feenix accrued royalty revenue of $39,600 at December 31 and received royalties of $40,130 on February 1, 2019.
Required:
A) What adjustments, if any, should be made to retained earnings or to the 2018 financial statements? Explain.

Respuesta :

Based on the information given, it can be noted that there'll be no journal entry or any other adjustment required in 2018.

In the subsequent year, the royalty is received, therefore, the journal entry will be:

  • Debit Cash $40130
  • Credit Receivable - Royalty revenue $39600
  • Credit Royalty revenue $530

The royalty accrued for the previous year was $39600 and the royalty that was received is $40130, therefore the difference of $539 is credited to royalty revenue in order to record the revenue.

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