Question

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.

Answer 1

Answer:

Adjusting entry for 2019

Dr Cash 530

Cr Retain Earnings 530

Explanation:

Adjusting entry for 2019

Dr Cash 530

Cr Retain Earnings 530

Received royalties of $40,130 -Accrued royalty revenue of $39,600 = $530

Because of the Increase in the revenue received in February 2019, the accounting system should therefore be adjusted in the year 2019 reason been that the Feenix accrued royalty revenue of $39,600 was only an estimate that was done in 2018 which means the entry should be adjusted in the current year not the previous year.