What accounting standard impacts Learningrx's process for evaluating the recognition of initial franchise fees?

Upon evaluation of the five-step process, the Corporation has determined that this standard does not impact the recognition of royalties, marketing fees, and technology fees from locations operated by a franchisee, which are based on a percentage of gross revenue and recognized at the time the underlying sales occur. ASC 606 does have an effect on the process management uses to evaluate the recognition of the initial franchise fees.

In allocating the transaction price and recognizing the revenue associated with initial franchise fees, the Corporation has elected to adopt the practical expedient for private company franchisors outlined in ASC 952-606, Franchisors—Revenue from Contracts with Customers. The practical expedient allows franchisors to account for pre-opening services as a single distinct performance obligation. These preopening services include the following:

• Assistance in the selection of a site
• Assistance in obtaining facilities and preparing the facilities for their intended use, including related financing, architectural, and engineering services, and lease negotiation
• Training of the franchisee's personnel or the franchisee in the LearningRx processes and systems
• Preparation and distribution of manuals and similar material concerning operations, administration, and record keeping
• Bookkeeping, information technology, and advisory services, including setting up the franchisee's
• Inspection, testing, and other quality control programs

The Corporation has determined that the fair value of pre-opening services exceeds the initial fees received; as such, the initial fees are allocated to the pre-opening services, which are recognized as revenue upon commencement of operations.

Source: Item 23 — RECEIPT (FDD pages 54–209)