Reference no: EM132594363

Question - Sheldon sold a restaurant franchise to Penny. The sale agreement signed on January 2, 2015 called for a 30,000 down payment plus an interest-bearing note of 20,000 payable in two annual payments representing the value of initial franchise services rendered by Sheldon. In addition, the agreement required the franchisee to pay 5% of its gross revenues to the franchisor; this was deemed sufficient to cover the cost and provide a reasonable profit margin on continuing franchise services to be performed by the franchisee. The restaurant opened early in 2015, and its sales for the year amounted to 500,000. The management of Penny has estimated that they can borrow a loan of this type a the rate of 10%. The present value factor of an ordinary annuity at 10% for 2 periods is 1.7335. How much should Penny recognize as total revenue from the franchise?