Reference no: EM132567350

Question - On January 1, 20x1, a franchisor grants a license to a franchisee to use the franchisor's trade name of Tasty Taco and to sell the Tasty Taco menu for 10 years. The license is a contract between the franchisee and the franchisor. The franchisor receives a fixed fee of $500,000 on January 1, 20x1, plus a royalty equal to 5% of customer's sales over the term of the license of 10 years. The franchisor expects to provide services related to the license evenly over the license term. These activities are customary business practices of the franchisor and include product improvements, pricing strategies, advertising campaigns, and operational suggestions to support the franchise name and venue. None of these activities directly transfers goods or services to the franchisee.

Required - Determine how much Franchise Revenue the franchisor can recognize on December 31, 20x1 assuming that the franchisee reported sales of $350,000 for all of 20x1.