According to FASB, initial franchise fees should be recognized as income when
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A. B. C. D.B
Accounting and reporting standards for franchisors require that revenue be recognized when the franchisor has substantially performed or satisfied all material services and conditions.
According to FASB (Financial Accounting Standards Board), initial franchise fees should be recognized as income when the franchisor has substantially performed or satisfied all material services and conditions. This means that the franchisor has fulfilled its obligations and provided the necessary goods, services, or benefits to the franchisee as agreed upon in the franchise agreement.
Option A, which states that the franchisee shows the ability to pay the fee, is not the appropriate criterion for recognizing income from initial franchise fees. The ability of the franchisee to pay the fee is not directly related to the franchisor's performance or satisfaction of services and conditions.
Option C, which suggests that the franchisor has collected the majority of the fee in cash, is also not the determining factor for recognizing income from initial franchise fees. Cash collection alone does not indicate that the franchisor has fulfilled its obligations or satisfied the necessary conditions.
Option D, stating that the franchisor bills the franchisee, is not a sufficient condition for recognizing income from initial franchise fees. Billing is simply the process of invoicing the franchisee and does not indicate the completion of the services or conditions specified in the franchise agreement.
Therefore, the correct answer is option B, which states that initial franchise fees should be recognized as income when the franchisor has substantially performed or satisfied all material services and conditions. This means that the franchisor has fulfilled its obligations and provided the necessary goods, services, or benefits to the franchisee as agreed upon in the franchise agreement.