How does B Bops recognize revenue for franchise fees?
B_Bops Franchise · 2025 FDDAnswer from 2025 FDD Document
contract.
Recognize revenue when or as the Company satisfies a performance obligation. Revenues for franchise fees are recognized at a point in time, which is generally upon oral or written agreement for a franchise contract, which, at this point, right to use the franchise license passes to the customer. Management exercises judgment in determining when such performance obligations for goods have been satisfied. Revenue is also recognized over time as the royalty income per the contract is based on a percentage of gross sales of the franchise and is recognized on a monthly basis when they are earned per the agreement.
See Independent Auditors' Report
Note 1 Nature of business and significant accounting policies (continued)
Income Taxes
The Company has elected under section 1362(a) of the Internal Revenue Code of 1986 to be taxed as an "S" corporation effective July 1, 2002. Earnings and losses after that date will be included in the personal income tax returns of the stockholder and taxed depending on his personal tax strategies. Accordingly, the Company will not incur additional income tax obligations, and future financial statements will not include a provision for income taxes. The Company has filed for and received acknowledgement from the IRS in the various jurisdictions where it is required to do so. The Company files a form 1120S tax return in the U.S. federal jurisdiction and the applicable return in the state of lowa.
In response to House File 352 the Company has elected to pay a newly imposed Iowa Pass-Through Entity Tax ("PTET") on behalf of the shareholder. This tax is assessed as 6.04% of the Company's Iowa-source S Corporation distributive items and is applied to reduce the shareholder's proportionate share of federal taxable income reportable on their personal income tax return. Accordingly, the shareholder recognizes a federal income tax benefit as if the shareholder's state income tax was fully deductible on the shareholder's personal federal income tax return. Since the income tax benefits associated with the PTET exclusively benefit the shareholder, the tax is recognized as a distribution to that shareholder.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 52–53)
What This Means (2025 FDD)
According to B Bops's 2025 Franchise Disclosure Document, the company recognizes revenue for franchise fees at a specific point in time. This generally occurs upon an oral or written agreement for a franchise contract, signifying the moment when the right to use the franchise license is transferred to the customer. B Bops management exercises judgment in determining when the performance obligations for goods have been satisfied.
In addition to franchise fees, B Bops also recognizes revenue over time through royalty income. This income is based on a percentage of the gross sales of the franchise, specifically 5% of gross sales each month. This royalty revenue is recognized on a monthly basis as it is earned, according to the franchise agreement.
B Bops follows a five-step process for revenue recognition under Topic 606. This process includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price, and recognizing revenue when or as the company satisfies a performance obligation. The performance obligations include the right of use of the franchise license and the right to operate a B-Bop's Franchise.
The transaction price for franchise fees consists of fixed consideration identified in the contract, with invoices generally issued when both parties agree to the franchise contract and due within 30 days. The contracts typically do not include financing components as the period between the transfer of performance obligations and payment is generally within one month.