Pita Pal sells fast-food franchises.Pita Pal receives $75,000 from a new franchisee for providing initial training,equipment,and furnishings that together have a stand-alone selling price of $75,000.Pita Pal also receives $36,000 per year for use of the Pita Pal name and for ongoing consulting services (starting on the date the franchise is purchased).Rachel became a Pita Pal franchisee on March 1,2016,and on May 1,2016 Rachel had completed training and was open for business.How much revenue in 2016 will Pita Pal recognize for its arrangement with Rachel?

Question

Quizplus · Accepted Answer

Pita Pal will recognize the $75,000 initial fee as revenue immediately and will recognize $27,000 ($36,000 ÷ 12 months x 10 months remaining in 2016) for the ongoing consulting services in 2016. Therefore, the total revenue recognized in 2016 will be $75,000 + $27,000 = $102,000.

Pita Pal Sells Fast-Food Franchises