Hi guys, I am using Rogers review and at times I think that the explanation is not great at times for the questions. Can you please help with the following!
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. The balance 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?
$20,000
$0
$50,000 (correct answer)
$10,000
Correct! Franchise agreement revenue is recognized only once the franchisor has performed substantially all the material contractual services and collectability is reasonably assured. Because Macklin performed all services, there appear to be no concerns about collectability, and the refund period has expired, Macklin should recognize the full amount of revenue in the current year.
The way the questions is worded confuses me. The initial fee of $50000 plus 10,000 is received with the agreement is signed. Initially, I thought that $5000 is the total that will be received and 10,000 is received the first year. I first thought that the answer is 10,000, but the correct answer is 50,000. If 50,000 is received the first year then how is the $10,000 accounted for the first year?
can anyone please help me out, this is out of the intangible section of FAR
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