Section 3 Background

On January 1, MU separately entered into a non-exclusive licensing agreement with KH. The licensing agreement allows KH the right to use the MU trademarked logo on aprons and chef hats for a two-year period. MU also plans to spend $1 million during the two-year period on advertising its products with the logo. The rights and terms granted by MU to KH are similar to those granted by MU in licensing agreements with various other companies. KH paid MU a one-time fee of $12,000 on January 1at the inception of the two-year licensing period.

Section 3 Part 1 Requirement

You are asked to advise MU on how revenue related to the KH licensing agreement should be recognized during January. Suggest journal entries and disclosures, if required. Your memo should be based on current GAAP.