Tran Technologies licenses its functional intellectual property to Lyon Industries. Terms of the arrangement require Lyon to pay Tran $500,000 on April 1, 2021, when Lyon first obtains access to Tran's intellectual property, and then in the future 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 2021 and $1,500,000/year for the years 2022-2026. Assume Tran accounts for the Lyon license as a right of use, because Tran's actions subsequent to April 1, 2021, 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 nine-digit Codificatio citation (XXX-XX-XX-XX) for accounting for variable consideration arising from sales-based royalties on licenses of intellectual property, and consider the relevant GAAP. 2. What journal entry would Tran record on April 1, 2021, when it receives the $500,000 payment from Lyon? 3. Assume on December 31, 2021, Tran receives $1,000,000 for all sales-based royalties from Lyon in 2021. What journal entry would Tran record on December 31, 2021, to recognize any revenue that should be recognized in 2021 with respect to the Lyon license that it has not already recognized?
Tran Technologies licenses its functional intellectual property to Lyon Industries. Terms of the arrangement require Lyon to pay Tran $500,000 on April 1, 2021, when Lyon first obtains access to Tran's intellectual property, and then in the future 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 2021 and $1,500,000/year for the years 2022-2026. Assume Tran accounts for the Lyon license as a right of use, because Tran's actions subsequent to April 1, 2021, 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 nine-digit Codificatio citation (XXX-XX-XX-XX) for accounting for variable consideration arising from sales-based royalties on licenses of intellectual property, and consider the relevant GAAP. 2. What journal entry would Tran record on April 1, 2021, when it receives the $500,000 payment from Lyon? 3. Assume on December 31, 2021, Tran receives $1,000,000 for all sales-based royalties from Lyon in 2021. What journal entry would Tran record on December 31, 2021, to recognize any revenue that should be recognized in 2021 with respect to the Lyon license that it has not already recognized?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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).
- Identify the specific nine-digit Codification citation (XXX-XX-XX-XX) for accounting for variable consideration arising from sales-based royalties on licenses of intellectual property.
- Consider the relevant Generally Accepted Accounting Principles (GAAP).
2. **Journal Entry on April 1, 2021:**
- Determine the journal entry Tran would record when receiving the $500,000 payment from Lyon.
3. **Journal Entry on December 31, 2021:**
- Assume on December 31, 2021, Tran receives $1,000,000 for all sales-based royalties from Lyon in 2021.
- Identify the journal entry needed to recognize any revenue that should be recognized for 2021 concerning the Lyon license that has not been already recognized.
4. **Five-Year License Period Accounting:**
- Assume Tran accounts for the Lyon license as a five-year right to access Tran’s symbolic intellectual property from April 1, 2021, through March 31, 2026.
- Tran expects ongoing marketing efforts will influence the value of the license to Lyon during this five-year period.
- Repeat requirements 2 and 3 for this scenario.
#### Detailed Explanation:
No graphs or diagrams are accompanying this scenario. However, the case provides a structured way to understand how Tran Technologies and Lyon Industries should handle the accounting for a licensing agreement involving intellectual property. The instructions detail accessing authoritative accounting resources, determining proper journal](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F87f377c8-556b-40c3-ad73-583aac17d9d0%2Fb0f9e242-cf28-411f-9d33-2a187e80de5d%2Feazo85r_processed.png&w=3840&q=75)
Transcribed Image Text:### Intellectual Property Licensing: Tran Technologies and Lyon Industries
#### Case Overview:
Tran Technologies licenses its functional intellectual property to Lyon Industries. The terms of this arrangement include:
- Lyon is to pay Tran $500,000 on April 1, 2021, when Lyon first obtains access to Tran’s intellectual property.
- An additional royalty payment of 4% of future sales of products using this intellectual property will be paid to Tran.
- Tran anticipates receiving sales-based royalties of $1,000,000 during 2021 and $1,500,000 annually for the years 2022–2026.
- Tran accounts for the Lyon license as a right of use, as Tran’s actions post-April 1, 2021, will influence the benefits Lyon receives from the intellectual property access.
#### Required Tasks:
1. **Access the FASB Accounting Standards Codification:**
- Visit the FASB website ([www.fasb.org](http://www.fasb.org)).
- Identify the specific nine-digit Codification citation (XXX-XX-XX-XX) for accounting for variable consideration arising from sales-based royalties on licenses of intellectual property.
- Consider the relevant Generally Accepted Accounting Principles (GAAP).
2. **Journal Entry on April 1, 2021:**
- Determine the journal entry Tran would record when receiving the $500,000 payment from Lyon.
3. **Journal Entry on December 31, 2021:**
- Assume on December 31, 2021, Tran receives $1,000,000 for all sales-based royalties from Lyon in 2021.
- Identify the journal entry needed to recognize any revenue that should be recognized for 2021 concerning the Lyon license that has not been already recognized.
4. **Five-Year License Period Accounting:**
- Assume Tran accounts for the Lyon license as a five-year right to access Tran’s symbolic intellectual property from April 1, 2021, through March 31, 2026.
- Tran expects ongoing marketing efforts will influence the value of the license to Lyon during this five-year period.
- Repeat requirements 2 and 3 for this scenario.
#### Detailed Explanation:
No graphs or diagrams are accompanying this scenario. However, the case provides a structured way to understand how Tran Technologies and Lyon Industries should handle the accounting for a licensing agreement involving intellectual property. The instructions detail accessing authoritative accounting resources, determining proper journal
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