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How should sm recognize revenue for the arrangement

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Reference no: EM132743672

Vinyl records are returning! Sunny Music [SM], publisher of the Boffo Boys, a Kentucky jug band, has just licensed their entire book of hits, including all-time best-seller "Bottle Me Now, Drink Me Soon", to Big Time Investor [BTI]. All the music is on long-playing vinyl records, which will sell at premium prices of $40 each.

BTI will have the right to manufacture, market and distribute the records to newly opened record stores for five years. BTI makes a non-refundable upfront payment of $50 million to SM for that right. BTI also agrees to pay SM a royalty of $2 on each record sold.

REQUIRED

Problem 1. Identify SM's performance obligation[s].

Problem 2. How should SM recognize revenue for this arrangement? Cite appropriate literature in support of your response.

Reference no: EM132743672

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