On January 1, year 1, Sip Co. signed a five-year contract
enabling it to use a patented manufacturing process beginning in
year 1. A royalty is payable for each product produced, subject to
a minimum annual fee. Any royalties in excess of the minimum
will be paid annually. On the contract date, Sip prepaid a sum
equal to two years’ minimum annual fees. In year 1, only minimum
fees were incurred. The royalty prepayment should be
reported in Sip’s December 31, year 1 financial statements as