What accounting standards topic does the Black Bear Diner company use for revenue recognition?
Black_Bear_Diner Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenue Recognition: The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) when the customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
advertising fund contributions, initial franchise fees and upfront fees from development agreements. Under franchise agreements, the Company provides (ii) pre-opening services, such as training and inspections, and (iii) ongoing services, such as development of training materials and menu items and restaurant monitoring and inspections. The Company concluded that the services represent individually distinct performance obligations from the broader franchise license agreement. Consequently, the Company distinguishes the promises to provide services separately from the franchise license performance obligation, the latter of which is satisfied by providing a right to use the
Franchise Fee - The Company grants franchises to operators in exchange for an initial franchise fee plus royalties (see Royalty below) based upon the sales generated for each restaurant. Franchise agreements are typically ten years in length and require upfront deposits prior to a new restaurant opening. The Company records these deposits as franchise fee contract liabilities on the balance sheet as both current and long-term. Initial franchise fees are recognized as revenue when the performance obligations under the franchise agreement are satisfied, which occurs upon the opening of the new franchise restaurant.
Royalty - Franchise royalties are based on a percentage of the sales, typically 4.50%, generated by the ttributable to franchised restaurants are recognized in the same period the sales are generated at the franchise restaurants. Similarly, the Company has a related party trademark license agreement with BTH that requires BTH restaurants to pay the Company a 4.50% royalty. This arrangement is more fully desc
Advertising - Franchisees are contractually obligated to contribute into certain advertising and marketing funds. There are no distinct performance obligations associated with the franchise advertising contributions received by the NAF that are separate from the Com contributions and the related expenses are presented statements of cash flows.
Other - Periodically, the Company receives funds from vendors primarily to sponsor conferences. Amounts determined to be unearned are deferred and are included as a component of other accrued liabilities in the balance sheets until the related expenses are charged to operations.
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
According to the 2025 FDD, Black Bear Diner recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, titled "Revenue from Contracts with Customers." This standard dictates that revenue is recognized when a customer gains control of the promised goods or services. The amount of revenue recognized reflects the consideration that Black Bear Diner expects to receive in exchange for those goods or services.
For Black Bear Diner, this means that revenue from franchise fees is recognized when the obligations outlined in the franchise agreement are fulfilled, which typically occurs upon the opening of a new franchise restaurant. Royalties, which are a percentage of sales (typically 4.50%), are recognized in the same period that the sales are generated at the franchised restaurants. The company also has a related party trademark license agreement with Bear Tracks Holdings LLC (BTH) that requires BTH restaurants to pay Black Bear Diner a 4.50% royalty.
Franchisees are contractually obligated to contribute to advertising and marketing funds. The FDD states that there are no distinct performance obligations associated with the franchise advertising contributions received by the National Advertising Fund (NAF) that are separate from the contributions. The contributions and related expenses are presented in the statements of cash flows. Black Bear Diner also receives funds from vendors to sponsor conferences; unearned amounts are deferred and included as a component of other accrued liabilities until the related expenses are charged to operations.