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?

Question

Quizplus · Accepted Answer

The license is for symbolic intellectual property, so the presumption is that the UFL's ongoing activities affect the value of the trademark to Tank-Skin, and the UFL should recognize revenue over time. Therefore, the amount of $1 million initial license fee that the NFL should recognize as revenue is $250,000 (computed as $1 million ÷ 4 years).

The Ultimate Frisbee League (UFL) Licenses Its Trademark to Tank-Skin