Prince Technologies licenses its intellectual property to KingIndustries. Terms of the arrangement require King to pay Prince$500,000 on April 1, 2016, when King first obtains access toPrince's intellectual property, and then to pay Prince a royalty of4% of future sales of products that utilize that intellectualproperty. Prince anticipates receiving sales-based royalties of$1,000,000 during 2016 and $1,500,000/year for the years 2017â2021.Assume Prince accounts for the King license as a right of use,because Prince's actions subsequent to April 1, 2016, will affectthe benefits that King receives from access to Prince'sintellectual property.
Required: 1.Access the FASB Accounting Standards Codificationsystem. Identify the specific citation for accounting for variableconsideration arising from sales-based royalties on licenses ofintellectual property, and consider the relevant GAAP. When canPrince recognize revenue from sales-based royalties associated withthe King license?
2.What journal entry would Prince record on April 1, 2016, whenit receives the $500,000 payment from King?
3.Assume on December 31, 2016, Prince receives $1,000,000 forall sales-based royalties earned from King in What journal entrywould Prince record on December 31, 2016, to recognize any revenuethat should be recognized in 2016 with respect to the King licensethat it has not already recognized?
4.Assume Prince accounts for the King license as a five-yearright to access Prince's intellectual property from April 1, 2016,through March 31, 2021. Prince expects that its ongoing marketingefforts will affect the value of the license to King during thefive-year license period. Repeat requirements 2 and 3.
Prince Technologies licenses its intellectual property to KingIndustries. Terms of the arrangement require King to pay Prince$500,000 on April 1, 2016, when King first obtains access toPrince's intellectual property, and then to pay Prince a royalty of4% of future sales of products that utilize that intellectualproperty. Prince anticipates receiving sales-based royalties of$1,000,000 during 2016 and $1,500,000/year for the years 2017â2021.Assume Prince accounts for the King license as a right of use,because Prince's actions subsequent to April 1, 2016, will affectthe benefits that King receives from access to Prince'sintellectual property.
Required: 1.Access the FASB Accounting Standards Codificationsystem. Identify the specific citation for accounting for variableconsideration arising from sales-based royalties on licenses ofintellectual property, and consider the relevant GAAP. When canPrince recognize revenue from sales-based royalties associated withthe King license?
2.What journal entry would Prince record on April 1, 2016, whenit receives the $500,000 payment from King?
3.Assume on December 31, 2016, Prince receives $1,000,000 forall sales-based royalties earned from King in What journal entrywould Prince record on December 31, 2016, to recognize any revenuethat should be recognized in 2016 with respect to the King licensethat it has not already recognized?
4.Assume Prince accounts for the King license as a five-yearright to access Prince's intellectual property from April 1, 2016,through March 31, 2021. Prince expects that its ongoing marketingefforts will affect the value of the license to King during thefive-year license period. Repeat requirements 2 and 3.
