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?

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Definitions:

Accumulated Depreciation

The cumulative sum of depreciation costs charged to a fixed asset from the time of its purchase.

Gain or Loss

The financial result of disposing or selling an asset or investment, measured by the difference between the sale price and the asset's book value.

Equipment

Tangible assets used in the operation of a business to produce goods or provide services, such as machinery, computers, or tools.

Double-declining-balance

An accelerated depreciation method that calculates depreciation at twice the rate of the straight-line method.