Problem
Your client, Software and Stuff, Inc., has developed a new electronic game. One part of the game uses software developed by another company, Yuma, Inc. Software and Stuff has agreed to pay Yuma, $4.10 per game sold. The following information is available.
1) Sales of this electronic game for the year were $3,810,500 for the year ended December 31, 2022.
2) On average, Software and Stuff sells this electronic game for about $20.
3) An alphabetized listing of disbursements indicates that three checks were issued to Yuma during the year - check #30328 for $200,000, check #50011 for $328,000, and check #70124 for $306,000.
4) The balance in the accrued royalty account at December 31, 2021 was $205,000.
5) The balance in the accrued royalty liability account at December 31, 2022 is $66,000.
6) The balance in the royalty expense account at December 31, 2022 is $700,000.
Do you believe that the accrued royalty liability account is stated correctly, overstated or understated at December 31, 2022?