lymouth Co. has done the research for several years on a new product and received three patents. Unfortunately, there are still several years of work to be done refining the product. Therefore Plymouth decides to create Decatur LLC, which will be owned by a group of investors, not by Plymouth. Decatur will buy Plymouth’s patents for $10 million and spend another $10 million on development over the next three years to create a commercially viable product, all performed under Plymouth’s supervision (Plymouth will be paid $1 million per year by Decatur to oversee development, guaranteed by a contract). After those three years, Plymouth will buy the rights to the new product, including all patents pending and approved as well as trade secrets for $28 million (so Decatur’s investors receive a pre-tax profit of $5 million with certainty). Decatur would then pay off the investors and dissolve.

-Assume that Decatur is not consolidated by Plymouth. What benefits does this arrangement provide to Plymouth? (Based on US GAAP) (30 words maximum)

-Does it seem likely that Plymouth would be required by GAAP to consolidate Decatur? Explain why or why not. (30 words maximum)

Answer rating: 100% (QA)

Ass ume that Dec atur is not consolidated by Plymouth What benefits d... View the full answer