You work as a staff accountant for Kidz Express, a publicly traded movie production company. Kidz Express is set to release "Dancing with Elephants" toward the beginning of next period. To promote the movie, Kidz Express will have promotional toys in children's meals sold by national fast food chain, Bugers 'n Dogs.
The CEO of Kidz Express wants to recognize licensing fee revenue from the fast food promotional as it is realized, stating that he sees no reason to delay the recognition. The CFO wants to wait until the release date of the movie as he explains the toy revenue is a "by-product" of the related movie. Your manager has requested you to explain whether the CEO or CFO's proposals are valid under US GAAP and how Kidz Express should recognize licensing fee revenue in accordance with US GAAP.
Use Codification to prepare a brief 2 paragraph summary with references, in average terms a non-accounting person would understand.
FASB Codification (926-605-25-30)
> Licensing Film-Related Products
25-30 An entity shall not recognize revenue from licensing arrangements to market film-related products until it releases the corresponding film.
You already have the correct regulation, so you argument should be based upon this regulation. As stated in the regulation - an entity should not recognize any revenue from licensing arrangements to market film-related products until the film has been released. The CEO wants to recognize the revenue as it is realized (earned) and not delay recognition. The CFO wants to wait until the release date of the movie. According to the regulation as stated, the revenue should be recognized only when the film has ...
This solution discusses the FASB Codification related to the recognition of revenue when a movie has not yet been released. This is in regards to a licensing agreement in conjunction with the upcoming movie debut.