Macklin Co. entered into a franchise agreement with Heath Co. for an initial fee of $50,000. Macklin received $10,000 when the agreement was signed. Heath signed an 8% interest bearing-note for $40,000. The note was to be paid at a rate of $10,000 per year, starting the next year. All services were performed by Macklin and the refund period had expired. Operations started in the current year. What amount should Macklin recognize as revenue in the current year?
A $0
B $10,000
C $20,000
D $50,000
Answer: D: $50,000 in revenue should be recognized. Revenue on a franchise agreement should be recognized when the franchisor has substantially performed all material services and conditions, and collectibility is reasonably assured. All services are performed and the refund period has expired.
I still do not understand why you recognized all $50K if you haven't received all the payments yet. I was thinkign of the journal entry as:
Dr. Cash 10,000
Dr. Note receivable 40,000
…….Cr. Discount on Note 0
…….Cr. Earned Revenue 10,000
…….Cr. Undearned Revenue 40,000
BEC: 65 - 79* - 84 DONE
AUD: 65 - 76 DONE
REG: 63 - 77 DONE
FAR: 65 - 63 - 67 - 69 - 73 - 71 - 83 DONE
Becker Notes & Flashcards, Wiley Test Bank, Ninja MCQ
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