Dreighton Engineering Group receives royalties on a technical manual written by two of its engineers and sold to William B. Irving Publishing, Inc. Royalties are 10% of net sales, receivable on October 1 for sales in January through June and on April 1 for sales in July through December of the prior year. Sales of the manual began in July 2020, and Dreighton accrued royalty revenue of $31,000 at December 31, 2020, as follows:
Receivable—royalty revenue ………………. 31,000
Royalty revenue ………………………………………………….. 31,000
Dreighton received royalties of $36,000 on April 1, 2021, and $40,000 on October 1, 2021. Irving indicated to Dreighton on December 31 that book sales subject to royalties for the second half of 2021 are expected to be $500,000.
Required:
1. Prepare any journal entries Dreighton should record during 2021 related to the royalty revenue.
2. What is the amount of the adjustment, if any, that should be made to retained earnings in the 2020 financial statements?
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