Hi All,

I am going through the example on page F2-9 2011 version. I have a question about the $70K of Year 1 unearned royalties income. Can someone help?

Why is the full 12/31/Year 1 unearned royalties of $70k added to calculate Year 2 royalty income?

How do we know that all of the $70k has been earned? In the facts it does not say that the prior year unearned royalties would be earned in the next year. Is this something that must be assumed?

Homework Question:
TAG Company receives royalties on its patents in two ways. In some cases, advance royalties are received and in other cases royalties are remitted within sixty days after year end.These data are included in TAG Company's December 31 balance sheets:

Royalties receivable
Year 1 $100,000
Year 2 $95,000
Difference($5,000)

Unearned royalties
Year 1 70,000
Year 2 45,000
Difference 25,000

During Year 2, TAG Company received royalty remittances of $180,000. In its income statement for the year ended December 31, Year 2, what should TAG Company's royalty income be?

Solution:
    Cash   receipts                    180,000

Receipts in Year 2 applied
to 12/31/Year 1 receivables        (100,000)

Cash remaining 80,000

Unearned royalties, 12/31/Year 2     (45,000)

Preliminary Year 2 royalty income     35,000

Unearned royalties, 12/31/Year 1      70,000

Receivables balance, 12/31/Year 2     95,000

Royalty   income,   Year    2         ; ;  200,000