Bai Biotech enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Bai will receive a payment of ¥10,000,000 if the drug receives regulatory approval. Based on prior experience in the drug-approval process, Bai determines it is 90% likely that the drug will gain approval and a 10% chance of denial.

Instructions

(a) Determine the transaction price of the arrangement for Bai Biotech.

(b) Assuming that regulatory approval was granted on December 20, 2015, and that Bai received the payment from Pang on January 15, 2016, prepare the journal entries for Bai.