During year 3, Fleet Co.’s trademark was licensed to Hitch Corp. for royalties of 10% of net sales of the trademarked items. Returns were estimated to be 1% of gross sales.  On signing the licensing agreement, Hitch paid Fleet $75,000 as an advance against future royalty earnings.  Gross sales of the trademarked items during the year were $600,000. What amount should Fleet report as royalty income for year 3?
　　A. $75,000
　　B. $60,000
　　C. $54,000
　　D. $59,400
　　Answer:D
　　D is corrent. The requirement is to determine the amount of royalty income for the year. Gross sales are $600,000 for Hitch Corp. The estimated 1% returns should be subtracted from gross sales to determine the net sales for the period, or $594,000 ($600,000 – $6,000). Therefore, this answer is correct because the royalty amount for the year is equal to $59,400 ($594,000 net sales × 10% royalty rate).