McNicols started selling franchise locations in April 2012. The franchisee pays continuing fees based on annual sales. The initial fee relates to finding a store location and training the franchisee at McNicols' training facility over a 2-year period.
Required:
a)Explain how McNicols should account for the initial fee.
b)Assume that management estimates that 40% of the value of services related to the initial fee is fulfilled in the first year of signing the franchise agreement. Provide the journal entries to record this revenue in fiscal 2012 and in 2013.
c)Explain how McNicols should account for the ongoing fees.
d)Provide the journal entries to record the ongoing fees in fiscal 2012 and 2013.

Question

McNicols started selling franchise locations in April 2012. The franchisee pays continuing fees based on annual sales. The initial fee relates to finding a store location and training the franchisee at McNicols' training facility over a 2-year period.
  Required:
a)Explain how McNicols should account for the initial fee.
b)Assume that management estimates that 40% of the value of services related to the initial fee is fulfilled in the first year of signing the franchise agreement. Provide the journal entries to record this revenue in fiscal 2012 and in 2013.
c)Explain how McNicols should account for the ongoing fees.
d)Provide the journal entries to record the ongoing fees in fiscal 2012 and 2013.

Quizplus · Accepted Answer

The Answer of McNicols started selling franchise locations in April 2012. The franchisee pays continuing fees based on annual sales. The initial fee relates to finding a store location and training the franchisee at McNicols' training facility over a 2-year period.
  Required:
a)Explain how McNicols should account for the initial fee.
b)Assume that management estimates that 40% of the value of services related to the initial fee is fulfilled in the first year of signing the franchise agreement. Provide the journal entries to record this revenue in fiscal 2012 and in 2013.
c)Explain how McNicols should account for the ongoing fees.
d)Provide the journal entries to record the ongoing fees in fiscal 2012 and 2013.

McNicols Started Selling Franchise Locations in April 2012