Refer to the Information in the Previous Question

question 162

Multiple Choice

Refer to the information in the previous question.Assume that the UFL anticipates that,in addition to receiving the $1 million license fee,it will receive a bonus of $2 million in year 1 of the contract and a bonus of $3 million in years 2-4 of the contract based on Tank-Skin's sales.Also assume that the UFL is convinced that it is probable there will not be a significant reversal of any revenue recognized with respect to the bonus in subsequent periods.At the inception of the contract,what is the amount of transaction price that the UFL would estimate with respect to this license arrangement?

• A)$0
• B)$1,000,000
• C)$3,000,000
• D)12,000,000

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Definitions:

Subsidiary Ledger

A detailed ledger that contains the supporting documents for a specific main account, such as accounts payable or receivable, to keep the general ledger uncluttered.

General Journal

A primary accounting record where financial transactions are initially recorded, before posting to specific accounts in the ledger.

Credit Entries

Accounting entries that increase liabilities, equity, and income accounts, or decrease asset and expense accounts.

Special Journal

A financial journal designed for recording a specific type of transaction in a more efficient manner, such as sales or purchases.