Question

Sweet Biotech enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Sweet will receive a payment of $9,400,000 if the drug receives regulatory approval. Based on prior experience in the drug- approval process, Sweet determines it is 70% likely that the drug will gain approval and a 30% chance of denial. Determine the transaction price of the arrangement for Sweet Biotech. Transaction price $ Assuming that regulatory approval was granted on December 20, 2020, and that Sweet received the payment from Pang on January 15, 2021, prepare the journal entries for Sweet. The license meets the criteria for point-in-time revenue recognition. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter for the amounts.) Date Account Titles and Explanation Debit Credit

Answer 1

Transaction Price = $9,400,000.

Since it is more probable that drug will be approved, the transaction price will be amount of payment to be received.

2.journal entries:

date	account titles	debit	credit
Dec 20 2020	Accounts receivable a/c	9,400,000
	..........To Licence revenue a/c		9,400,000
jan 15 2021	Cash a/c	9,400,000
	............To Accounts receivable a/c		9,400,000