Chapter 20, Problem 20.12E

Book royalties

• LO20–4

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 $31,000 at December 31, 2017, as follows:

Receivable—royalty revenue	31,000
Royalty revenue		31,000

Dreighton received royalties of $36,000 on April 1, 2018, and $40,000 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 $500,000.

Required:

1. 1. Prepare any journal entries Dreighton should record during 2018 related to the royalty revenue.
2. 2. What adjustments, if any, should be made to retained earnings or to the 2017 financial statements? Explain.