28689032-p2-Revenue-Recognition-for-Franchises

28689032-p2-Revenue-Recognition-for-Franchises - Chapter 1:...

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Chapter 1: Environment and Theoretical Structure of Financial Accounting REVENUE RECOGNITION FOR FRANCHISES 22. Franchise fees are properly recognized as revenue a. when received in cash. b. when a contractual agreement has been signed. c. after the franchise business has begun operations. d . after the franchiser has substantially performed its service. S, S & S Initial Franchise Fee Allocation of initial franchise fee. 27. Some of the initial franchise fee may be allocated to a. continuing franchise fees. b. interest revenue on the future installments. c. options to purchase the franchisee's business. d . all of these may reduce the amount of the initial franchise fee that is recognized as revenue. K, W & W Future bargain purchase option. 29. Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should a. increase revenue recognized from the initial franchise fee by the amount of the expected future purchases. b . record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases. c. defer recognition of any revenue from the initial franchise fee until the bargain purchases are made. d. None of these. K, W & W Option to purchase franchisee's business agreement. 30. A franchise agreement grants the franchisor an option to purchase the franchisee's business.
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28689032-p2-Revenue-Recognition-for-Franchises - Chapter 1:...

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