Deciphering Financial Statements (Ben & Jerry’s Homemade, Inc.)
Ben & Jerry’s Homemade, Inc., an ice cream manufacturer, was acquired by Unilever in 2000. Before that, Ben & Jerry’s was a publicly traded company. Below is the revenue recognition note for Ben & Jerry’s from its 1998 annual report:
Revenue Recognition
The Company recognizes revenue and the related costs when product is shipped. The
Company recognizes franchise fees as income for individual stores when services required by the franchise agreement have been substantially performed and the store opens for business. Franchise fees relating to area franchise agreements are recognized in proportion to the number of stores for which the required services have been substantially performed. Franchise fees recognized as income and included in net sales were approximately $708,000, $553,000, and $301,000 in 1998, 1997, and 1996, respectively.
1. What is the critical event for Ben & Jerry’s sale of ice cream?
2. What is the critical event for Ben & Jerry’s recognition of franchise fee revenue? Note that Ben & Jerry’s deals with two different types of franchise fees.