|Posted: 23 Aug 2016 at 03:54 | IP Logged
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?
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:
Year 1 $100,000
Year 2 $95,000
Year 1 70,000
Year 2 45,000
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?
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