Larry Was the Holder of a Patent on a Video

question 1

Essay

Larry was the holder of a patent on a video game. During 2017, he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated. Larry had not reduced the patent to practice. He had a $86,000 basis for the patent. During 2017, he received $30,000 in royalties. What is the nature and amount of Larry's gain?

---

Definitions:

Liability Increase

An augmentation in the current obligations that a company owes, which may include loans, accounts payable, mortgages, deferred revenues, or other debts.

Cost Of Assets Consumed

Expenses associated with the using up of assets resulting from operational activities.

Expense

Money spent or costs incurred in the process of generating revenue.

Shareholders' Equity

The residual interest in the assets of a company after deducting liabilities, representing the owners' claims on the company assets.