Pizza Factory enters into a franchise agreement on 11/1/16 giving Mow's House the right to operate as a franchisee of Pizza Factory for 5 years. The initial franchise fee is $100,000. Of this amount, $40,000 is payable when Mow's House signs the agreement, and the balance is payable in five annual payments of $12,000 each on 12/31. Pizza Factory helps locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide employee training and the equipment necessary to be a distributor of its products. Similar training services and equipment are sold separately. Mow's House also promises to pay ongoing royalty payments of 1% of its annual sales (payable each January 31 of the following year) and is obliged to purchase products from Pizza Factory at its current standalone selling prices at the time of purchase. The credit rating of Mow's House indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of $12,000 each discounted at 8% is $47,914. Training services and equipment are distinct because similar services and equipment are sold separately. Pizza Factory satisfies those performance obligations when it transfers the services and equipment to Mow's House. The values assigned to the performance obligations are: Rights to the trade name, market area, and proprietary know-how $40,000 Training services 19,914 Equipment (cost of $10,000) 28,000 Total transaction price $87,914 Training is completed in November and December 2016, the equipment is installed in December 2016, and Mow's House holds a grand opening on January 2, 2017. What amount of revenue should Pizza Factory recognize at 11/1/16? $40,000 $0 $28,000 $19,914. Pizza Factory enters into a franchise agreement on 11/1/16 giving Mow's House the right to operate as a franchisee of Pizza Factory for 5 years. The initial franchise fee is $100,000. Of this amount, $40,000 is payable when Mow's House signs the agreement, and the balance is payable in five annual payments of $12,000 each on 12/31. Pizza Factory helps locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide employee training and the equipment necessary to be a distributor of its products. Similar training services and equipment are sold separately. Mow's House also promises to pay ongoing royalty payments of 1% of its annual sales (payable each January 31 of the following year) and is obliged to purchase products from Pizza Factory at its current standalone selling prices at the time of purchase. The credit rating of Mow's House indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of $12,000 each discounted at 8% is $47,914. Training services and equipment are distinct because similar services and equipment are sold separately. Pizza Factory satisfies those performance obligations when it transfers the services and equipment to Mow's House. The values assigned to the performance obligations are: Rights to the trade name, market area, and proprietary know-how $40,000 Training services 19,914 Equipment (cost of $10,000) 28,000 Total transaction price $87,914 Training is completed in November and December 2016, the equipment is installed in December 2016, and Mow's House holds a grand opening on January 2, 2017. What amount of revenue should Pizza Factory recognize at 11/1/16? $40,000 $0 $28,000 $19,914
