On January 3, 2011, Lincoln Services, Inc., signed an agreement authorizing Lisa Company to operate as a franchisee over a 20-year period for an initial franchise fee of $100,000 received when the agreement was signed. Lisa commenced operations on July 1, 2011, at which date all of the initial services required of Lincoln had been performed. The agreement also provides that Lisa must pay a continuing franchise fee equal to 5% of the revenue from the franchise annually to Lincoln. Lisa's franchise revenue for 2011 was $800,000. For the year ended December 31, 2011, how much should Lincoln record as revenue from franchise fees from the Lisa franchise?

Question

Quizplus · Accepted Answer

Lincoln should record the initial franchise fee of $100,000 as revenue since all initial services were performed by July 1, 2011. Additionally, Lincoln should record 5% of Lisa's franchise revenue for 2011, which is $800,000 * 5% = $40,000. Therefore, the total revenue from franchise fees is $100,000 + $40,000 = $140,000.