Case for Don Mario Company

Don Mario Company acquires copyright from authors, paying in advance royalties in some cases and
others, paying royalties within 30 days of year-end. Don Mario reported royalty expense of P375,000
for the year ended December 31,2X20. The following data are included in the corporation's
December balance sheet:

2X19 2X20
Prepaid royalties P60,000 P50,000
Royalties payable 75,000 90,000

 Under the cash basis, what amount of royalty expense should be reported in 2X20
profit or loss?

Answer:

Royalties Expense, Accrual P 375,000

Royalties Payable, 2X19 75,000
Royalties Payable, 2X20 (90,000)
Prepaid Royalties, 2X19 (60,000)
Prepaid Royalties, 2X20 50,000
Royalties Expense, Cash Basis P 350,000