Larry Was the Holder of a Patent on a Video

question 18

Essay

Larry was the holder of a patent on a video game.During 2014,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 an $86,000 basis for the patent.During 2014,he received $30,000 in royalties.What is the nature and amount of Larry's gain?

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Definitions:

Accounts Receivable Turnover

A financial ratio that measures how efficiently a company collects revenue from its credit sales by dividing total net credit sales by the average accounts receivable.

Accounts Receivable

Funds that customers are required to pay to a company for products or services that have been provided but not yet compensated for.

Net Credit Sales

The total revenue from sales made on credit after subtracting returns and allowances.

Inventory Turnover

A ratio indicating how many times a company's inventory is sold and replaced over a specific period.