Atrium Medical, Inc. (Atrium Medical) is a medical device company in New Orleans that specializes in developing hip replacement hardware. In 2011, Atrium Medical acquired 100 percent equity ownership of DOC Inc. (DI) for a purchase price of $16 million. DOC, Inc. is a pharmaceutical company that is in the process of developing two vastly different drugs: (1) a drug to cure cancer, Drug B, and (2) a pain medication, Stopiumosis. In order to expand into a new area within the medical field, Atrium Medical acquired the entity. Through the acquisition method of accounting, Atrium Medical recognized intangible assets for the in-process research and development (IPR&D) related to the ongoing development of Drug B and Stopiumosis, among other acquired intangible assets. Drug B and Stopiumosis had an acquisition date fair value of $4 million and $3 million, respectively. During 2012, Atrium Medical determined they could not support the continued development of Drug B because significant efforts were being put forth in the development of Stopiumosis. Since the date of acquisition, Atrium Medical had not invested any additional funding in the development of Drug B. Atrium Medical determined that there was no change in the carrying amount recorded at the date of acquisition. Rather than abandon the development project, Atrium Medical entered into an agreement with Druggest Company (Druggest) to transfer its ownership interests in the IPR&D for Drug B. Druggest, the markets largest pharmaceutical company, will use Drug Bs IPR&D to continue its development, and obtain FDA approval to sell the drug on the open market. The transfer of the IPR&D from Atrium Medical to Druggest is known as an out-license transfer, which is essentially a sale agreement. In return, Druggest will pay Atrium Medical (1) a nonrefundable fixed fee of $2 million at contract execution, (2) the ability to earn contingent future payments of $500,000, when Drug B is FDA approved, and a 10 percent royalty fee based on the annual sales earned by Druggest for the sale of Drug B in each of the subsequent five years following FDA approval. At the date of transfer, Atrium Medical estimates the fair value of the total consideration (nonrefundable fixed fee and contingent future fees) to be $5.5 million, which assumes FDA approval is granted. On that day Druggest transfers $2 million for the ownership of the IPR&D of Drug B to Atrium. At the date of transfer to Druggest, how should Atrium Medical record the transaction? I've looked at other examples like this and a lot of the answers either disagree with each other or don't really give a good explanation on how/why they got certain numbers for example a couple of answers say that 400,000 should be expensed without saying where they came from and and all help on this problem would be appreciated