Revenue recognition; franchise sales
Response to the following problem:
EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (SEC). All publicly traded domestic companies use EDGAR to make the majority of their filings. (Some foreign companies file voluntarily.) Form 10-K which includes the annual report, is required to be filed on EDGAR. The SEC makes this information available on the Internet.
Required:
1. Access EDGAR on the Internet. The web address is www.sec.gov
2. Search for Jack in the Box, Inc. Access the most recent 10-K filing. Search or scroll to find the financial statements and related notes.
3. Answer the following questions related to the company's revenue recognition policies:
a. When does the company recognize initial franchise license fee revenue?
b. How are continuing fees determined?
4. Repeat requirements 2 and 3 for two additional companies that you suspect also earn revenues through the sale of franchise rights. Compare their revenue recognition policies with the policies of Jack in the Box.