Final answer:
The revenue recognized by Italian Fine Dining Inc. for the year 2020 is $34,000, which includes $12,000 for specialized equipment transferred and $22,000 for one year of the franchise services.
Step-by-step explanation:
To determine the amount of revenue to recognize for Italian Fine Dining Inc. on December 31, 2020, we need to consider the guidance in ASC 606, which addresses revenue recognition. The contract includes both the franchise rights and specialized equipment. According to ASC 606, revenue should be recognized when control of the goods or services is transferred to the customer, and the transaction price should be allocated to the separate performance obligations.
In this case, the standalone selling price of the franchise services is $88,000, and the price of the specialized equipment is $12,000. As the equipment was transferred to the franchisee on March 1, 2020, the revenue from the equipment should be recognized at that point. Since this question asks for the revenue recognized on December 31, 2020, we would recognize a full year of franchise services and the equipment costs.
Therefore, the revenue to recognize is:
Specialized equipment revenue: $12,000 (transferred on March 1, 2020)
Franchise services revenue: $88,000 / 4 years * 1 year = $22,000
Adding both amounts gives us:
$12,000 (equipment) + $22,000 (franchise services) = $34,000 recognized revenue for the year 2020.