User Account

All Pages

How should nn account for the royalty payments

Assignment Help Financial Accounting
Reference no: EM132495566

NN Pharma, a pharmaceutical company in Iceland, owns and maintains a portfolio of patents related to an antibiotic that treats life-threatening diseases. On February 23, 20X8, NN grants BTX (a pharmaceutical company in Saudi Arabia) the exclusive right to use its patented drug formula to commercialize and supply the antibiotic in the MENA Region. The intellectual property (IP) is fully developed, and regulatory approval has been obtained; therefore, BTX is able to commercialize the IP. NN has determined that the patented drug formula is functional IP and that therefore, the license grants BTX the right to use the IP.

In exchange for the exclusive right to use the patented drug formula, BTX agrees to pay NN Pharm the following amounts:

1. An up-front fee of $300 million.

2. Annual fixed fees of $50 million payable at the end of each year in which
the contract is effective.

3. Sales-based royalties of 5 percent of BTX's sales of the antibiotic in Saudi Arabia (recognized in accordance with the sales-based royalty exception in ASC 606-10-55-65).

  • The contract states that BTX has the exclusive right to use the patented drug formula through the patent term, which expires in 10 years (i.e., the contract ends when the patent expires). The contract also states that BTX may terminate the contract before the expiration of the patent by providing three months' notice to NN Pharma.
  • All amounts already paid by BTX are nonrefundable in the event of early termination. The contract does not include an explicit termination penalty (i.e., BTX is not required to pay additional cash consideration to NN Pharma upon early termination); however, upon early termination, the right to the patented drug formula in MENA would revert back to NN Pharma, which would be able to relicense the patented drug formula to a different pharmaceutical company in the MENA region. This alternative is only available to BTX and only if BTX terminates the contract before the end of the 10-year term.

Questions:

Question (1) what is the contract period here?

Question (2) how should BTX account for the upfront payment (it's a cost to BTX)?

Question (3) How should NN Pharma account for the upfront payment (its revenue to NN)?

Question (4) How should NN account for the royalty payments (revenue)? And

Question (5) how should NN account for the fixed annual payments (revenue)?

Reference no: EM132495566

Questions Cloud

Studying the relationship between religious affiliation : A social researcher is interested in studying the relationship between religious affiliation and years of education. Here is the data she is working with:
What is the terminal year non-operating cash flow : What is the terminal year non-operating cash flow? Calculate the operating cash flows from years 1 to 3. Woodland Corporation purchased a printing machine
What legal restrictions would limit large marts ability : What legal restrictions would limit Large Mart's ability to make changes to their inventory cost flow assumptions, and whether or not the reason
Determine the prevalence of generalized anxiety disorder : The researcher determines that the prevalence of generalized anxiety disorder among the participants of the study is 6.1%. Calculate the z value for the test st
How should nn account for the royalty payments : How should NN account for the royalty payments (revenue)? And how should BTX account for the upfront payment (it's a cost to BTX)?
Find the probability that the sum of the 100 values : The mean is 39.01 with a standard deviation of 0.5. The researcher randomly selects a sample of 100.
Make a vertical analysis of the income statement : Make a vertical analysis of the income statement showing appropriate percentages for each item listed above income statement for Masters Corporation
ACC 106 Accounting Principles Assignment : ACC 106/100 Accounting Principles Assignment Help and Solution - Emirates College of Technology, UAE. Journalize the January transactions
Make an analysis showing the trend percentages : Make an analysis showing the trend percentages for the four years 2015-2018, using 2015 as the base year. The following table shows selected data for Wong Co.

Reviews

Write a Review

Financial Accounting Questions & Answers

  Company produces a handcrafted balinese

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone

  What would be the material cost per unit

Department E had 4,000 units in Work in Process that were 40% completed at the beginning of the period at a cost of $12,266. Of the $12,266, $8,009 was for material and $4,257 was for conversion costs. All materials are added at the beginning of the ..

  Which was considered to be both unusual and infrequent

At the beginning of its 2013 calendar-year accounting period, Commet, Inc. had retained earnings of $6,500,000. During 2013, Commet reported income from continuing operations before taxes of $1,100,000. Commet had an uninsured flood loss of $20,000 (..

  Cost per equivalent unit for materials and conversion costs

At the start of November, Penco Refinery had Work in Process inventory consisting of 4,000 units that were 90 percent complete with respect to materials and 50 percent complete with respect to coversion costs. Calculate the cost per equivalent unit f..

  Calculations of the current ratio

Describe the appropriate means of reporting each situation and explain your reasoning and is this practice ethical -Provide arguments both for and against.

  What is the balance in the retained earnings account

Prepare the journal entries necessary to close the temporary accounts at December 31, 2016, for Zone Health Club. What is the balance in the Retained Earnings account after the closing entries are posted?

  Specifically revenues and cash flows

Regarding project financial management, specifically revenues and cash flows: You will be paid for each side as that side is completed and accepted. In this case, assume that the sides have a finish-to-finish relationship instead of a finish-to-start..

  Discuss the importance of measuring cash flows for business

Discuss the importance of measuring cash flows for a business. How could a manager benefit from using a Statement of Cash Flows on a routine basis? What considerations should be made relating to noncash activities that may not appear directly within ..

  The straight-line depreciation for financial

The Bellcamp Soup Company uses the straight-line depreciation for financial

  Calculate the change in the deferred income taxes

Northern Corporation began operations in January 2011, and purchased a machine for $20,000. Northern uses straight-line depreciation over a four-year period for financial reporting purposes. Prepare a well-labeled table that reconciles pre-tax accoun..

  What has been the advantage of financing with debt as oppose

In capital budgeting (in recent years), what has been the advantage of financing with debt as opposed to equity?

  Explain financial statement effects of fifo and lifo

Financial Statement Effects of FIFO and LIFO the management of Tritt Company has asked its accounting department to describe the effect upon the company's financial position and its income statements of accounting for inventories on the LIFO rathe..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd