Watt Inc is the owner of patent #1234. On 1/1/01 Watt entered into a patent license agreement with Cherokee Manufacturers. The agreement calls for an initial lump sum payment of $100,000 and an ongoing royalty of 5% of the selling price of any product produced under the patent. These payments are make yearly on 1/31 covering all sales in the previous year. The $100,000 is non refundable but can be applied against any ongoing 5% royalty payments. During year 2001, Cherokee's sales of licensed product amounted to $1,800,000. How much royalty revenue should Watt record in the year 2001?
(a) $100,000 ; (b) $90,000 ; (c) $190,000 or (d) $0
On 1/1/03, Pacer Co sold land that cost $20,000 for $50,000 receiving a note bearing interest at 5%. The note will be paid in three annual installments of $18,360 starting on 12/31/03. Because collection of the note was deemed to be very uncertain, Pacer chose to use the cost recovery method. The first installment payment of $18,360 was received 12/31/03. How much gross profit from this sale should Pacer recognize in 2003?
(a) $0 ; (b) $30,000 ; (c) $18,360 or (d) $2,500