Part B:

In September 2020, Biotech Pharma enters into a licensing arrangement with Clover Pharmaceuticals for a drug under development that gives Clover to the right to use Biotechs patent to manufacture and sell the drug under the license given by Biotech Pharma. Biotech will receive a payment of $25,000,000 if the drug is approved by FDA. Based on past experience in drug approval process, Biotech determines that it is 80% likely that the drug will gain approval with 20% change of denial.

The approval was granted on December 10, 2020 and Biotech received the payment from Clover on January 31, 2021. Biotechs fiscal ends on December 31.

1. Determine the transaction price of the revenue arrangement for Biotech.

2. Prepare journal entries for Biotech on December 10, 2020 and January 31, 2021.