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CCan someone expain why don't you include that $75k in expense? Isn't it already a reasonable estimate? Question 26 (AICPA.910556FAR-P1-FA) Based on 2000 sales of

image text in transcribedimage text in transcribedCCan someone expain why don't you include that $75k in expense? Isn't it already a reasonable estimate?

Question 26 (AICPA.910556FAR-P1-FA) Based on 2000 sales of compact discs recorded by an artist under a contract with Bain Co., the artist earned $100,000 after an adjustment of $8,000 for anticipated returns. In addition, Bain paid the artist $75,000 in 2000 as a reasonable estimate of the amount recoverable from future royalties to be earned by the artist. What amount should Bain report in its 2000 Income Statement for royalty expense? Correct $100,000 $108,000 $175,000 Your Answer $183,000 This Answer is Correct The net amount earned by the artist is also the royalty expense to the firm. Royalty expense is recognized on the basis of the sales of the CD. Adjustments to the final amount earned for 2000, after all return information is known, will be treated as an adjustment to royalty expense in 2001. New information in 2001 will require a change in estimate, not retroactive application. The $100,000 amount is the best estimate of the royalty cost to Bain in 2000 that will ultimately be paid on 2000 sales

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