On December 31, 2021, Entity A enters into a contract with Customer X to transfer...
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Accounting
On December 31, 2021, Entity A enters into a contract with Customer X to transfer a license for a fixed fee of 100,000 payable as follows:
20% is payable upon signing of the contract.
80% is represented by a note receivable collectible in 4 equal annual installments starting December 31, 2022.
The appropriate discount rate is 12%. The license provides Customer X the right to use Entity As patented processes. The agreement requires Customer X to discontinue using its trade name and instead use Entity As trade name. Customer X is bound by the terms of the contract to abide with Entity As policies on the use of the processes but is given the right to any subsequent modifications to the processes.
Required: How much revenue from the franchise contract will Entity A recognize in 2021
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