Question

TopChop sells hairstyling franchises. TopChop receives $66,000 from a new franchisee for providing initial training, equipment, and furnishings that have a stand-alone selling price of $66,000. TopChop also receives $44,000 per year for use of the TopChop name and for ongoing consulting services (starting on the date the franchise is purchased). Carlos became a TopChop franchisee on July 1, 2021, and on August 1, 2021, had completed training and was open for business. How much revenue in 2021 will TopChop recognize for its arrangement with Carlos?

Answer 1

Sol - The solution of the above problem is given below-

Calculation of additional revenue

The yearly fee is $44,000 and the recognized TC fee is 50% (6/12) months

Additional Revenue = yearly fee / TC recognized fee

= $44,000 * 50%

= $22,000

Now we will calculate total recognized revenue

The recognized revenue is $66,000 and the additional revenue is $22,000

Total recognized revenue = Recognized revnue + additional revenue

= $66,000 + $22,000

= $88,000

Therefore the total recognized revnue is $88,000