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, 2018, and on May 1, 2018 Rachel had completed training and was open for business. How much revenue in 2018 will Pita Pal recognize for its arrangement with Rachel?

Question

Quizplus · Accepted Answer

Because Rachel had completed training and was open for business on May 1, 2018, Pita Pal apparently has satisfied its performance obligation with respect to the initial training, equipment and furnishings, so it would recognize $75,000 of revenue in 2018. In addition, since Rachel was a franchisee and using the Pita Pal name and consulting services for the last ten months of 2018, Pita Pal should recognize 10 ÷ 12 of a yearly fee of $36,000, or $30,000. In total, Pita Pal recognizes revenue from Rachel of $75,000 + 30,000 = $105,000 in.2018.

Pita Pal Sells Fast-Food Franchises