Tran Technologies licenses its functional intellectual property to Lyon Industries. Terms of the arrangementrequire Lyon to pay Tran $500,000 on April 1, 2018, when Lyon first obtains access to Tran’s intellectual property, and then to pay Tran a royalty of 4% of future sales of products that utilize that intellectual property. Trananticipates receiving sales-based royalties of $1,000,000 during 2018 and $1,500,000/year for the years 2019–2021. Assume Tran accounts for the Lyon license as a right of use, because Tran’s actions subsequent to April 1,2018, will affect the benefits that Lyon receives from access to Tran’s intellectual property.Required:1. Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Identify thespecific citation for accounting for variable consideration arising from sales-based royalties on licenses ofintellectual property, and consider the relevant GAAP. When can Tran recognize revenue from sales-basedroyalties associated with the Lyon license?
Tran Technologies licenses its functional intellectual property to Lyon Industries. Terms of the arrangement
require Lyon to pay Tran $500,000 on April 1, 2018, when Lyon first obtains access to Tran’s intellectual property, and then to pay Tran a royalty of 4% of future sales of products that utilize that intellectual property. Tran
anticipates receiving sales-based royalties of $1,000,000 during 2018 and $1,500,000/year for the years 2019–
2021. Assume Tran accounts for the Lyon license as a right of use, because Tran’s actions subsequent to April 1,
2018, will affect the benefits that Lyon receives from access to Tran’s intellectual property.
Required:
1. Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Identify the
specific citation for accounting for variable consideration arising from sales-based royalties on licenses of
intellectual property, and consider the relevant GAAP. When can Tran recognize revenue from sales-based
royalties associated with the Lyon license?
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