Answered: How much contract revenue will Eugene…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On December 31, 20x1, Eugene enters into a contract with Planktonto transfer a licensed with a fixed dee of 100,000 payable as follows:

20% upon signing of contract
80% in 4 equal annual installments starting December 31, 20x2. The appropriate discount rate is 12%.

The license provides that Plankton rights over Eugene patented secret formula for a burger patty. The agreement requires Plankton to discontinue using its trade name and instead, use Eugene trade name for a period of 4 yeasr. Plankton is bound by the terms of the contract to abide with Eugene policies on the use of the secret formulabut is given the right to any subsequent modifications to the secret formula. Eugene provides the secret formula to Plankton on December 31, 20x1. How much contract revenue will Eugene recognized in 20x1?

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