What was the amount of non-refundable franchise fees recognized by Hyper Kidz in 2021?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
68 | | 1,468 | | Net income | | 52,292 | | | | - | | BALANCE, DECEMBER 31, 2022 | $ | 55,630 | $ | (176,919) | $ | (173,581) |
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 BOOMERANG FRANCHISE, LLC STATEMENTS OF CASH FLOWS
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | |||
| Net income) | $ 52,292 | $ 46,173 | $ 110,241 |
| Adjustments to reconcile net income to net | |||
| cash provided by operating activities: | |||
| Recognition of non-refundable deferred franchise sales | (4,279) | (3,950) | (6,913) |
| Changes in assets and liabilities: | |||
| Accounts receivable | (18,006) | ||
| Accrued expense | 2,993 | 820 | - |
| Royalties collected in advance | (36,612) | 36,612 | - |
| Non-refundable deferred franchise fees | 39,500 | ||
| Net cash provided by operating activities | 35,888 | 79,655 | 103,328 |
| CASH FLOWS FROM FINANCING ACTIVITIES | |||
| Proceeds from notes payable | - | 79,000 | - |
| Advances to affiliates, net | 1,468 | (163,377) | - |
| Member contributions | - | 1,800 | - |
| Member distributions | (30,000) | - | (100,386) |
| Net cash (used) by financing activities | (28,532) | (82,577) | (100,386) |
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, the amount of non-refundable franchise fees recognized in 2021 was $3,950. This figure reflects the portion of initial franchise fees that Hyper Kidz recognized as revenue during that year, as opposed to deferring it to future periods. These fees are associated with the services and rights Hyper Kidz provides to franchisees upon signing the franchise agreement.
For a prospective Hyper Kidz franchisee, this detail provides insight into how the franchisor accounts for its franchise fee revenue. The recognition of non-refundable franchise fees indicates when Hyper Kidz considers its obligations related to those fees fulfilled. The deferred revenue accounting method is common in franchising because the franchisor provides ongoing services and support to the franchisee over the term of the agreement.
It's important to note that the initial franchise fee is typically non-refundable, regardless of whether it is recognized immediately or deferred. The FDD also details that unearned initial fee revenues will be recorded as non-refundable deferred revenue. This accounting practice ensures that Hyper Kidz recognizes revenue as it fulfills its obligations to the franchisee, aligning revenue recognition with service delivery.