Mattson Company Receives Royalties on a Patent It Developed Several

question 145

Essay

Mattson Company receives royalties on a patent it developed several years ago. Royalties are 5% of net sales, to be received on September 30 for sales from January through June and receivable on March 31 for sales from July through December. The patent rights were distributed on July 1, 2017, and Mattson accrued royalty revenue of $60,000 on December 31, 2017, as follows: Mattson received royalties of $65,000 on March 31, 2018, and $80,000 on September 30, 2018. In December, 2018, the patent user indicated to Mattson that sales subject to royalties for the second half of 2018 should be $800,000.
Required:
(1.) Prepare any journal entries Mattson should record during 2018 related to the royalty revenue.
(2.) What changes should be made to retained earnings relative to these royalties?

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Definitions:

Opportunity Cost

The cost of missing out on the second-best option while choosing between two mutually exclusive options in a decision-making process.

Profit

The financial gain realized when the revenue generated from business activities exceeds the expenses, costs, and taxes needed to sustain the activity.

Average Total Cost

The complete expense of manufacturing (encompassing both fixed and variable expenditures) divided by the overall amount of goods produced.

Output

The quantity of goods or services produced by a firm, industry, or economy within a certain period.