Question
Sheridan Biotech enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Sheridan will receive a payment of $7,300,000 if the drug
Sheridan Biotech enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Sheridan will receive a payment of $7,300,000 if the drug receives regulatory approval. Based on prior experience in the drug-approval process, Sheridan determines it is 85% likely that the drug will gain approval and a 15% chance of denial.
Determine the transaction price of the arrangement for Sheridan Biotech.
Transaction price $______
Assuming that regulatory approval was granted on December 20, 2017, and that Sheridan received the payment from Pang on January 15, 2018, prepare the journal entries for Sheridan. The license meets the criteria for point-in-time revenue recognition.
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