The Following Footnote Appeared in a Recent Annual Report to Stockholders

question 198

Essay

The following footnote appeared in a recent annual report to stockholders of Starbucks Corporation: "Initial nonrefundable development fees required under licensing agreements are recognized upon substantial performance of services for new market business development activities, such as initial business, real estate, and store development planning, as well as providing operational materials and functional training courses for opening new licensed retail markets. Additional store licensing fees are recognized when new licensed stores are opened."
Briefly explain why Starbucks recognizes this type of revenue as it does.

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Definitions:

Wiring

Involves the system of insulated conductors used to supply electricity to a building, equipment, or circuit.

Repainting

The process of applying a new coat of paint to a surface to restore its appearance or protect it.

Equipment Account

A ledger account that records the purchase price and subsequent expenses related to the acquisition of equipment.

Installation Costs

Expenses incurred to place an asset into service and prepare it for its intended use.