Under what condition is the initial franchise fee fully recognized by Hydrodog?

The Company has obligations to provide franchisees with the franchise rights to operate Hydrodog businesses, training, and other assistance to launch their franchise, as well as to provide software and technology services and brand marketing and advertising support. The Company has elected to adopt Accounting Standards Update No. 2021-02, Franchisors - Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient, to address concerns about the complexity of applying Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, to private company franchisors, specifically relating to the amount and timing of revenue recognition for initial franchise fees. The Company has concluded that certain preopening services (training, site selection, etc.) are a separate performance obligation distinct from the franchise license. Therefore, initial franchise fees for preopening services are allocated between the preopening services and the franchise right for each individual franchise. The preopening services revenue is recognized when the franchise is opened, as the Company cannot reasonably estimate its progress toward satisfaction of that obligation. Typically, the initial franchise fee is less than the stand-alone selling price of the preopening services provided; therefore, the initial fee is fully recognized by the time the business opens.

Source: Item 23 — RECEIPTS (FDD pages 43–166)