Yur Own Baseball Card

BACKGROUND

XXXЎЇs baseball team entered into an 10-year agreement with a local bank in Phoenix (the Ў°BankЎ±) to provides the Bank with the exclusive right to use the names, trademarks, copyrights and logos (collectively Ў°the MarksЎ±) of the XXX alumni association and athletic group in connection with marketing credit cards to the alumni, athletics fans, employees, faculty members, and students of XXX for a period of ten years. XXX has agreed to provide the Bank with a minimum of 200,000 names list of XXX alumni, athletics fans, employees, faculty members, and students of XXX. The list will be updated at least twice a year. The Bank has been approved to have the rights to use all marketing materials to market the credit card program. And XXX may not unreasonably be withheld the approval.

XXX will earn $1 royalty per new account at inception and on each anniversary, provided the card is renewed. XXX will also earn between .04 percent and .05 percent of net retail sales as royalties, which excludes refunds, financing charges, and cash advances.

XXX has authorizes the use of XXXЎЇs Marks and provides access to a list of at least 200,000 names to the Bank, and has received the one-time payment of $10,000,000 (the Ў°Guaranteed AdvanceЎ±) that will be offset against future royalties earned by XXX. The Guaranteed Advance is not refundable to the Bank if XXX fulfills all it obligations. And the agreement is silent as to the consequences if XXX defaults on its obligations. If the agreement is terminated due to an Ў°uncured material breachЎ± by the Bank, XXX is not required to remit any unearned portion of the Guaranteed Advance to the Bank. At the end of the fifth year, XXX has the right to terminate the agreement. If XXX elects to terminate the agreement at the end of the fifth year, XXX must repay $4 million of the Guaranteed Advance. XXX does not anticipate receiving any additional royalties, since the average annual card usage would have to be in the range of $50,000 to $100,000.

DISCUSSION OF ISSUE (S)

There are several issues relating to XXXЎЇs prepaid royalties from the Bank.

1. Whether there is special treatment for Non-for profit entity

2. Whether the Guaranteed Advanced is a revenue or liability at inception.

3. When should XXX recognize the Guaranteed Advance as revenue.

4. How much should be recognized each year.

5. Whether record the revenue as operating revenue or other revenue in financial statements.

TECHNICAL LITERATURE CITATIONS

FASB Concepts Statement No. 4, Objectives of Financial Reporting by Nonbusiness Organizations (FASB CS No. 4)

FASB Concepts Statement No. 6, Elements of Financial Statements (FASB CS No. 6)

FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises (FASB CS No. 5)

ANALYSIS

FASB CS No. 4, states that based on its review of those objectives and the objectives set forth in FASB Concepts Statement No. 1, Objectives of Financial Reporting by Business Enterprises, the Board has concluded that it is not necessary to develop an independent conceptual framework for any particular category of entities. Hence, FASB CS No. 5 & 6 is applicable to XXX.

FASB CS No. 6 defines that revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. A not-for-profit organization's service-providing efforts, most of