The CFO is now preparing the annual financial statements for the year ended December 31,

2020, and considering the following transactions during the most recent quarter:

MPL recently attracted two new researchers to the company. The researchers were paid an

upfront signing bonus of $350,000 each. The researchers come from a larger company and have a proven track record of developing profitable products. For example, the researchers recently developed (in their previous employment) a highly profitable testing procedure that detects early stages of prostate cancer. The procedure is estimated to generate in excess of $5 million in discounted cash flows. The researchers must work for MPL for a minimum of three years, or else the bonus must be repaid.

MPL purchased a patented pharmaceutical drug for $3.4 million from a smaller company that does not have the resources to commercialize the product. The product treats kidney disease and is named BlockXs. Generally, drug patents last for 20 years. However, the patent was applied forthree years ago when clinical trials began.

The product has been recently approved by both Health Canada and the U.S. Food and Drug

Administration (FDA), and will be available to the market next year. BlockXs is expected to earn the following net cash flows:

Fiscal 2021$1,250,000

Fiscal 2020$750,000

Fiscal 2023$750,000

Fiscal 2023$750,000

Fiscal 2025$750,000

Fiscal 2026$750,000

Fiscal 2027$750,000

Fiscal 2028$750,000

During the most recent quarter, MPL had a breakthrough in its research and development of a new protein supplement called Protein2. Protein2 successfully merges the benefits of whey and casein proteins in an ultra absorptive formula. The following costs were incurred on the project during the past quarter:

Protein2Costs Incurred

Costs incurred in order to obtain government approvals and patents: $33,000

Purchase of equipment to be used to manufacture the protein supplement: 550,000

Materials and services consumed in development of formula: 345,000

Payroll and consulting expenses incurred in the design of a logo and packaging: 37,800

Marketing of the product in fitness magazines: 34,750

Cost of efforts to refine, improve, and enhance the formula: 177,500

Materials used in preproduction pilot testing: 88,000

$1,266,050

Management is excited to launch this product as the protein supplement industry is large, and growing. Both Health Canada and the U.S. FDA have approved the product, and a patent for the formula has been filed and approved. Protien2 is expected to generate net cash flows of $450,000 per year over the next five years.

MPL purchased a nontransferable right to distribute its products through a direct-to-doctor sales company. The company visits doctors and hospitals and directly promotes the benefits of the products in order to sell the product. MPL paid $1.2 million to acquire the distribution rights for a four-year period, and must pay a royalty of 2% of all products sold through this outlet.

Management expects that there is a 55% chance that this new distribution arrangement will increase total sales by 5%. Total revenue in the current fiscal year is $5,150,000. However, thereis a 25% probability that sales could increase by as much as 10%, and a 20% probability that sales could increase by as little as 2%.

Required You have been hired as part of the accounting group. The CFO has asked you to prepare a reportthat discusses the appropriate accounting treatment of the transactions noted above. The CFO would like you to not only address recognition and initial measurement but also subsequent measurement.