[grandia01]

hello everyone
can you help me with this question please?
” Rill Co. owns a 20% royalty interest in an oil well. Rill receives royalty payments on January 31 for the oil sold between the previous June 1 and November 30, and on July 31 for oil sold between December 1 and May 31. Production reports show the following oil sales:
June 1, year 1 – November 30, year 1 $300,000
December 1, year 1 – December 31, year 1 50,000
December 1, year 1 – May 31, year 2 400,000
June 1, year 2 – November 30, year 2 325,000
December 1, year 2 – December 31, year 2 70,000
What amount should Rill report as royalty revenue for year 2? ”
it says that the correct answer is $149,000…
thank you all for your time!!

[Anonymous]

You just add up all of the year 2 oil sales and multiply by 20%

400,000 sales 12/1/X1 – 5/31/X2
(50,000) sales 12/1/X1 – 12/31/X1
325,000 sales 6/1/X2 – 11/30/X2
70,000 sales 12/1/X2 – 12/31/X2

745,000 total sales x 20% royalty interest = $149,000 royalty revenue

[Stilgoin]

@grandia01 There is a FAR study group for questions of this nature. If every single person on this forum started a discussion post for every single question they have, then it would be difficult to read the other, non-question posts. 😉

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[Substantive Testing]

The key concept for this question is that royalties are earned when incurred and not when received.
If ABC company sold Disney toys on June 24, 2015, but did not pay the royalties to Disney until January 28, ABC have to record a royalty expense June 24, 2015 and Disney have to record a royalty revenue on June 24, 2015. Therefore, the date that the royalty is paid do not matter for revenue and expense problems.

@stilgoin that study group is a mess. People spam questions and is very hard to answer them one-on-one.

[grandia01]

thank you very much everyone!! this really helped!! *salute*

[vodrldnr]

It is revenue recognition question. recognize revive when it is earned and realized or realizable

so, you just need to find the sales earned for year 2 only, not year 1.

[Anonymous]

Hi There,

I'm struggling with the same question. I understood your explanation, but i don't understand why you have to deduct the 50k to reach to the right answer. Thanks your help is highly appreciated.

[mckan514w]

Because 50K earned in December 1 is recognized in year 1 but has also been included in the figures for Dec-May Year 2 so it needs to be subtracted out of that amount.

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[Birdman]

@anthony Because 50k represents the amount of royalties from December year 1 that were included in a year 2 payment.

FAR- 74, 78 (10/15)
BEC- 73
REG- 65, 88 (05/16)
AUD- 7/16

[Author]

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