Papestry, Inc. owns severalbrands, Couch, Kare Spade, and Start Wetzman.Papestry will license the brand name to other companies. As an example, Papestry licenses the Kare Spade brand to Fossil to manufacture and sell watches. Frossil pays Papestry a minimum guarantee or 1 percent of Frossil's sales as royalty for the use of the Kare Spade brand.

Papestry states this about revenue recognition from licensing.

The Company recognizes licensing revenue over time during the contract period in which licensees are granted access to the Company's trademarks. These arrangements require licensees to pay a sales-based royalty and may include a contractually guaranteed minimum royalty amount.Revenue for contractually guaranteed minimum royaltyamounts is recognized ratably over the license year and any excess sales-based royalties are recognized as earned once the minimum royalty threshold is achieved.

Required:

1. Papestry uses a fiscal year of June 30, so the quarterly reports will be for September30, December 31, March

31. Let's say that the "contractually guaranteed minimum royaltyamount" from Frossil to Papestry is $10,000 yearly, and the royalties are transferred from Frossil to Papestry quickly as sales are made. Let's say that each quarter Frossil pays either the 1 percent of sales or the quarterly ratable guaranteed minimum, whichever is less. Frossil's sales of Kare Spade watches had this pattern for the year.

	Quarterlysales
	September 30	December 31	March 31	June 30	Total for year
Sales	$100,000	$150,000	$400,000	$500,000	$1,150,000

1. Provide the journalentry for Papestry to record the license revenue from Fossil for the quarter ending September 30.
2. Provide the journalentry for Papestry to recordthe license revenuefrom Fossil for thequarter ending December 31.
3. Provide the journalentry for Papestry to record the licenserevenue from Fossil for the quarter ending March 31.
4. Provide the journalentry for Papestry to record the license revenuefrom Fossil for thequarter ending June 30.
5. I can imagine that a Fossil customer will occasionally return a watch. This suggests that a royalty paid from Frossil to Papestry is either returnedor maybe the next payment is slightly deductedfor the returns.What this means for Papestry that Papestry should understand that the revenue recognized from "Required 1." is not likely to be the actual final net revenue. The final net revenue will be somewhat lower because of returns. Papestry is required to estimate how much the returns will be. Let's say that Tapestry's share of anticipated returns will be $500. Papestry will make a journal entry like this:

Sales Returns $500

Estimated Returns $500

The account, Sales Returns,will be deducted from Sales to reportNet Sales.

In your text, Figure6-1 describes GAAP accounting rules and management discretion. Suppose management is close to getting a bonus this year, based on sales growth. Will management have an incentive to increase the estimate of sales returns or decrease the estimate? Explain.

1. Suppose management intendsto exercise their discretion. Within the financial reporting process,what are the likely responsibilities of the
2. Audit Committee
3. Compensation Committee.