Reference no: EM132345244

Question

Scholastic Corp. is a children's media company. It maintains over 5,000 titles (e.g., Hunger Games, Captain Underpants) and has the exclusive U.S. rights to the Harry Potter book series.

The following information was included on Scholastic's 2017 financial statements. This is not a trial balance. It is a list of accounts as they appeared on the balance sheet and income statement as of and for the year ended May 31, 2017. All amounts represent normal balances (e.g., accounts payable has a credit balance of $120). (Note: Retained earnings is ending retained earnings)

Accounts payable $ 120

Long-term debt $ 345

Accounts receivable 340

Loss from discontinued operations 6

Accumulated depreciation 455

Other accrued expenses 235

Allowance for doubtful accounts 26

Prepaid expenses 126

Cash 195

Prepublication costs* 160

Common stock 510

Property, plant and equipment 785

Copyrights and trademarks 250

Retained earnings 724

Cost of goods sold 1,000

Revenues 2,150

Deferred revenue 45

Royalties payable 95

Depreciation 90

SGA expense 875

Interest expense 15

Tax expense 62

Inventory 295

Treasury stock 404

* Scholastic capitalizes the art, pre-press and editorial costs incurred in the creation of the master copy of a book ("prepublication costs"). Prepublication costs are amortized (as part of cost of goods sold) over a three year period once the title is available for sale.

In fiscal year 2017, $1,350 of sales related to license products. The inventory cost Scholastic $580 to manufacture. Additionally, Scholastic pays 7% royalties on these sales. Scholastic incurs royalty expense for the use of certain intellectual property (e.g., when it sells a Star Wars book). This expense is included as part of cost of goods sold. Assume Scholastic has not paid any cash royalties yet this year.

Prepare the journal entries that Scholastic made in 2017 (1) related to the sale of the licensed products and (2) record royalty expense.