[ab29]

I need help solving the following problem. The answer is $149,000( I don’t understand why the 50,000 is subtracted from the year 2 sales):
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?

[VDP]

The problem only asks for year 2 revenue, but in the given information, December year 1 is included with year 2 sales. The problem tells you that December 1-31 year 1 had sales of $50,000 so you must subtract that amount from the $400,000 given for December year 1 – May 31 year 2.

This gives you $350,000 for January 1 year 2 – May 31 year 2 + $325,000 for June through November + $70,000 for December year 2, which equals $745,000 total sales in year 2.

Royalty interest is 20% so $745,000 X .2 = $149,000.

Hope this helps!

[Author]

Replies