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How would ARRANGE Co recognize revenue

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Question - On November 1, 20x1, ARRANGE Co. entered into a franchise contract with COLLOCATE Co. The franchise agreement provides COLLOCATE Co. the exclusive right to sell the products of ARRANGE Co. within a specified geographical area for three years.

The franchise contract requires ARRANGE Co. to undertake activities that would further improve the products covered under the franchise contract. Although those activities do not result in the transfer of a good or a service to ARRANGE Co. as those activities occur, it is expected that COLLOCATE Co. will benefit from those activities.

All the necessary preparations were completed, and COLLOCATE Co. started operations on January 31, 20x2.

How would ARRANGE Co. recognize revenue from the initial franchise fee received from COLLOCATE Co.?

a. recognize in full on November 1, 20x1

b. recognize in full on January 31, 20x2

c. amortize between the period of November 1, 20x1 to January 31, 20x2

d. deferred and amortize over the franchise term starting January 31, 20x2

Reference no: EM133059394

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