Whispering enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Whispering will receive a payment of $10,000,000 if the drug receives regulatory approval. Based on prior experience in the drug-approval process, Whispering determines it is 90% likely that the drug will gain approval and a 10% chance of denial.
Required:
1. Determine the transaction price of the arrangement for Whispering.
2. Assuming that regulatory approval was granted on December 20, 2020, and that Whispering received the payment from Pang on January 15, 2021, prepare the journal entries for Whispering. The license meets the criteria for point-in-time revenue recognition.