During 2014, a textbook written by Mercer Co. personnel was sold to Roark Publishing, Inc., for royalties of 10% on sales. Royalties are receivable semiannually on March 31, for sales in July through December of the prior year, and on September 30, for sales in January through June of the same year.
$\bullet$Royalty income of $162,000 was accrued at 12/31/14 for the period July-December 2014.
$\bullet$Royalty income of $180,000 was received on 3/31/15, and $234,000 on 9/30/15.
$\bullet$Mercer learned from Roark that sales subject to royalty were estimated at $3,240,000 for the last half of 2015.In its income statement for 2015, Mercer should report royalty income at
A) $414,000.
B) $432,000.
C) $558,000.
D) $576,000.

Question

Quizplus · Accepted Answer

Royalties are receivable semiannually on March 31 and September 30, so the royalty income for sales in July-December 2015 will be received in 2016.

Royalty income already accrued for sales in July-December 2014 is $162,000, and royalty income received on March 31, 2015, for sales in January-June 2014 is $180,000. Therefore, the total royalty income for the first half of 2015 is $342,000 ($162,000 + $180,000).

Mercer learned from Roark that sales subject to royalty were estimated at $3,240,000 for the last half of 2015, so the royalty income for this period will be $324,000 ($3,240,000 x 10%).

Therefore, the total royalty income for 2015 is $666,000 ($342,000 + $324,000), and the income statement for 2015 should report royalty income of $576,000 ($666,000 - $90,000 accrued for July-December 2015).

The answer is D ($576,000).

During 2014, a Textbook Written by Mercer Co ∙\bullet∙ Royalty Income of $162,000 Was Accrued at 12/31/14 for the Sold

During 2014, a Textbook Written by Mercer Co $\bullet$ Royalty Income of $162,000 Was Accrued at 12/31/14 for the Sold