On January 3,2014,Continental Services,Inc. ,signed an agreement authorizing Peen Company to operate as a franchisee over a 20-year period for an initial franchise fee of $200,000 received when the agreement was signed.Peen commenced operations on July 1,2014,at which date all of the initial services required of Continental had been performed.The agreement also provides that Peen must pay a continuing franchise fee equal to 6% of the revenue from the franchise annually to Continental.Peen's franchise revenue for 2014 was $900,000.For the year ended December 31,2014,how much should Continental record as revenue from franchise fees from the Peen franchise?
A) $100,000
B) $106,000
C) $254,000
D) $266,000

Question

Quizplus · Accepted Answer

The initial franchise fee of $200,000 is recognized when the agreement is signed. The continuing franchise fee is recognized as revenue when earned. For 2014, the continuing franchise fee is 6% of $900,000, or $54,000. Therefore, the total revenue from franchise fees for 2014 is $200,000 + $54,000 = $254,000.