Neidpath Inc. (Neidpath) owns a brand name and logo that are known throughout the world. Recently, Neidpath agreed to license the name and logo to a company that will use them on its products (the licensee products that don’t compete with Neidpath’s). The agreement requires the licensee to make an initial payment of \($500,000\) to Neidpath at the beginning of the contract plus a royalty of \($1\) for each item sold that has the name and/or logo on it. The royalty is to be paid within 30 days of the end of Neidpath fiscal year.

Required:

Explain how Neidpath should recognize the revenue from the licensing agreement.

Consider the revenue from the initial fee and the royalty separately. Use the revenue recognition criteria to support your answer.