$In$ order $to$ complete the case analysis successfully, you must Project Technology$/$Assigned Name Fair Value Current

identify the role you are playing;

assess the financial reporting landscape, considering the user needs, constraints, and business environment;

identify the issues;

analyze the issues $(qualitatively$ and quantitatively$)$; and

provide a recommendation and conclusion.

Rosetta Inc.

Rosetta Inc. $(RI)is$ a new corporation that just acquired the assets $ofan$ unincorporated technology business $on$ September $1,2019,$ from Jess Stone. Extracts from the purchase and sale agreement entered into $byRI$ and Jess Stone are provided $in$ Exhibit I. $RIis$ owned $by$ three shareholders: Carlos Guevara, the CEO $ofRI,$ who owns $20\%of$ the shares $ofRI$; and two investors, who each own $40\%of$ the shares. Jess Stone $is$ not a shareholder $ofRI.$

Exhibit $I$

Extracts from the Purchase and Sale Agreement Between $RI$ and Jess Stone

Purchase and Sale $of$ the Business Assets $of$ Jess Stone

$RI$ will purchase the technology and the research findings $of$ Jess Stone $asat$ September $1,2019$

$RI$ agrees $to$ purchase the equipment owned $by$ Jess Stone $asat$ September $1,2019$

Jess Stone agrees $tobe$ responsible for all liabilities $asat$ September $1,2019$

Purchase and Sale Price

$RI$ will pay $to$ Jess Stone $an$ amount $of$ $$3\mathrm{.}5$ million for the technology and the research findings

$RI$ agrees $to$ pay $to$ Jess Stone the appraised value $of$ $$420,000$ for the equipment

Contingent Consideration

$RI$ agrees $to$ pay $to$ Jess Stone $an$ amount equal $to50\%of$ net income $(determinedin$ accordance with generally accepted accounting principles$)in$ excess $of$ $$500,000$ for the fiscal year ending August $31,2020$

Employment Contract with Jess Stone

$RI$ and Jess Stone agree $to$ enter into a two$-$year employment contract, and $RI$ agrees $to$ pay $to$ Jess Stone $an$ annual salary $of$ $$200,000$

Jess Stone agrees that all research findings during the employment are the property $ofRI$

Jess Stone developed new touch screen technology but lacked the financial resources necessary $to$ benefit commercially from this technology. The touch screen technology $is$ far superior $to$ the current technology and has many potential uses, ranging from mobile devices, computer screens, and laptops.

$RI$ put the technology $it$ purchased $to$ work immediately $by$ entering into a licensing agreement with Mica Inc. $(ExhibitII).In$ addition, $RI$ has developed a new $PC$ computer monitor with the touch screen and entered into $an$ agreement with Ferrous Inc. $to$ distribute the technology.

Exhibit $II$

Extracts from the Licensing Agreement Between $RI$ and MICA Inc.

Licensing Arrangement

$RI$ agrees $to$ provide $to$ Mica the exclusive right $to$ use the touch screen technology referred $toas$ FeldsparX for a term $of$ three years commencing $on$ December $1,2019$

$RI$ agrees $to$ deliver the technology $to$ Mica $on$ December $1,2019$

Mica agrees $to$ pay $toRI$ a licensing fee $in$ the amount $of$ $$900,000,$ with the first payment $of$ $$300,000$ due $on$ December $1,2019$; and agrees $to$ make payments $in$ the amount $of$ $$300,000$ plus interest $of$ $$36,000on$ December $1,2020,$ and $$300,000$ plus interest $of$ $$18,000on$ December $1,2021$

Royalty

Mica agrees $to$ pay $toRI$ a royalty fee $in$ the amount $of15\%of$ the gross margin $(determinedin$ accordance with generally accepted accounting principles$)$ realized $by$ Mica from sales $of$ goods that use the FeldsparX technology

Mica agrees $to$ provide $toRI$ a quarterly statement $of$ gross margin realized $by$ Mica that $is$ subject $to$ the royalty payable $toRI$

$RI,or$ its representative, has the right $of$ access $to$ the records and information $of$ Mica necessary $to$ audit the gross margin reported $by$ Mica $toRI$

You, CPA, have been recently employed $byRIas$ the special assistant $to$ Carlos Guevara. $On$ July $3,2020,$ Carlos calls you into his office and says $he$ has $an$ assignment for you:

"The financial statements $ofRI$ for the fiscal year ending August $31,2020,$ are required $tobe$ audited. I want you $to$ address the significant financial accounting issues pertaining $to$ the preparation $of$ RI's financial statements for its first fiscal year ending August $31,2020,$ and provide your recommendations $on$ the accounting treatments $tobe$ used."

$As$ you leave Carlos's office, $he$ provides you with a file that includes some additional information about the operations $ofRI(Exhibit$ III$).$

Exhibit III

Information Obtained About the Operations $ofRI$

Licensing Arrangement with Mica

Revenue $in$ the amount $of$ $$300,000$ has been recognized $in$ the accounting records

Royalty revenue $in$ the amount $of$ $$135,000$ has been recognized $in$ the accounting records based $on$ a gross margin $of$ $$900,000$ reported $by$ Mica for the six months from December $1,2019,to$ May $31,2020$

Mica $is$ a financially sound entity

Research and Development

$RI$ acquired the following technology and research findings from Jess Stone: