Chapter 5, Problem 5.9P

Requirement – 1

To determine

Financial Accounting Standards Board (FASB):

FASB is an independent 7 member board, of accounting professionals overseeing the creation of financial statement. FASB standards are generally known as GAAP.

Variable consideration:

Variable consideration refers to the uncertain transaction price that depends upon the outcome of future events.

Transaction price:

Transaction price refers to the price that is paid at the time of delivery or after delivery of goods and/or services. Specific situations affecting the transaction price are as follows:

• Variable amount of consideration and the restriction on its recognition.
• Rights for sales return
• Whether the seller is acting as a principle or an agent
• Time value of money
• Payments by the seller to the customer.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
• Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To discuss: The accounting for variable consideration arising from sales-based royalties on licenses of intellectual property, and when T can recognize the revenue for sales.

Requirement – 2

To determine

To prepare: The journal entry to record revenue from license.

Requirement – 3

To determine

To prepare: The journal entry to record revenue recognized on December 31, 2018.

Requirement – 4

To determine

To prepare: The journal entry to record deferred revenue on April, 1 and December 31, 2018.