Question

TopChop sells hairstyling franchises. TopChop receives $56,000 from a new franchisee for providing initial training, equipment and furnishings that have a standalone selling price of $56,000. TopChop also receives $35,000 per year for use of the TopChop name and for ongoing consulting services (starting on the date the franchise is purchased). Carlos became a TopChop franchisee on July 1, 2016, and on August 1, 2016, had completed training and was open for business.

How much revenue in 2016 will TopChop recognize for its arrangement with Carlos?

Answer 1

$73,500 is the revenue TopChop will recognize for the arrangement with Carlos.

Step-by-step explanation:

Revenue is calculated as follows.

= amount received + Use of name

= $56,000 + $35,000 × (1÷2)

= $73,500

New franchise fee can be immediately recognised as income.