Revenue Recognition
Response to the following problem:
Yummy, Inc., is a franchiser that offers for sale an exclusive franchise agreement for $30,000. Under the terms of the agreement, the purchaser of a franchise receives a variety of services associated with the construction of a Yummy Submarine and Yogurt Shop, access to various product supply services, and continuing management advice and assistance once the retail unit is up and running. The contract calls for the franchise purchaser to make cash payments of $10,000 per year for three years to Yummy, Inc.
How should Yummy, Inc., account for the sale of a franchise contract? Specifically, when should the revenue and receivable be recognized?