Franchise fee revenue from the initial sale of a franchise is recognized by the franchisor only when all material services or conditions applicable to the sale have been substantially performed.

Substantial performance is indicated by: (1) absence of intent to refund cash received or forgive any unpaid balance; (2) performance of substantially all initial services; and (3) nonexistence of other material conditions related to performance

Thus, let’s use the above concept in these 2 questions:

1.) The franchisor should report revenue from initial franchise fees when all material conditions of the sale have been “substantially performed”. Thus, Macklin Co. will recognize the entire initial fee in the current year for $50, 000.

2.) Again, here we would recognize $25,000 + PV of remaining fees $34,000 = $59,000 as “the initial cash payment is nonrefundable and no future services are required by Baker”

REMEMBER, if the franchisee pays the initial franchise fees over an extended period of time, the business would use the present value of initial franchise fees.

Hope it helps... Let me know what exact doubt you are facing here....