Question $2$

Ott Company acquired rights to a patent from Grey under a licensing agreement that required an advance

royalty payment when the agreement was signed. Ott remits royalties earned and due under the agreement

on October $31$ each year. Additionally, on the same date, Ott pays, in advance, estimated royalties for the

next year. Ott adjusts prepaid royalties at year$-$end. Information for the year ended December $31,$ year $2,$ is

as follows:

Date

January $1,$ year $2$ Prepaid royalties

October $31,$ year $2$ Royalty payment $($charged to royalty expense$)120,000$

In its December $31,$ year $2$ balance sheet, Ott should report prepaid royalties of

$=>$$$100,000$

$$$$55,000$

$$85,000$

$$65,000$