
Franchises; residual method
• LO5–6, LO5–7
Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monitor receives $600,000 in exchange for satisfying the following separate performance obligations: (1) franchisees have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory, (2) franchisees receive initial training and certification as a Monitor Mechanic, and (3) franchisees receive a Monitor Muffler building and necessary equipment. The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling price of the five-year right to operate as a Monitor Muffler establishment using the residual approach. Monitor received $75,000 on July 1, 2018, from Perkins and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins’s building and train and certify Perkins by September 1, and Perkins’s five-year right to operate as a Monitor Muffler establishment will commence on September 1 as well.
Required:
1. What amount would Monitor calculate as the stand-alone selling price of the five-year right to operate as a Monitor Muffler retail establishment?
2. What
3. How much revenue would Monitor recognize in the year ended December 31, 2018, with respect to its franchise arrangement with Perkins? (Ignore any interest on the note receivable.)

Want to see the full answer?
Check out a sample textbook solution
Chapter 5 Solutions
Intermediate Accounting
- Can you help me solve this financial accounting problem with the correct methodology?arrow_forwardPlease show me the correct way to solve this financial accounting problem with accurate methods.arrow_forwardPlease explain the correct approach for solving this general accounting question.arrow_forward
- I need assistance with this financial accounting question using appropriate principles.arrow_forwardI need assistance with this general accounting question using appropriate principles.arrow_forwardI need help finding the accurate solution to this general accounting problem with valid methods.arrow_forward
- Can you help me solve this general accounting problem with the correct methodology?arrow_forwardWhat is an example of a account that would be listed under current liabilities on a balance sheet and briefly explain why it would be categorized this way. How would we categorize the balance in a notes payable account: under current liabilities or long-term liabilities? Why?arrow_forwardCan you explain this general accounting question using accurate calculation methods?arrow_forward