Question

The ultimate frisbee league (ufl) licenses its trademark to tank-skin apparel. under the license arrangement, tank-skin pays the ufl a $1 million initial license fee plus a bonus when annual sales of tank-skin merchandise reach a threshold. the license agreement is for 4 years. how much of the $1 million initial license fee should the ufl recognize as revenue in the first year of the contract? select one:
a. $1,000,000
b. $250,000
c. $0
d. cannot tell from information given.

Answer 1

The ufl should recognize $250,000 as revenue in the first year of the contract. $1 million dollars is initial but that is to include a four year contract. 1 million divided by 4 is equal to 250,000. Therefore, each year is equal to the amount of $250,000 in revenue (from the license alone).