Acct #1

The following information comes from the 2013 financial statements of McDonald’s Corporation (Company). Conventional franchise arrangements generally include a lease and a license, and provide for payment of initial fees, continuing rent, and royalties to the Company based upon a percent of sales, with minimum rent payments that parallel the Company’s underlying leases and escalations (on properties that are leased). Under this arrangement, franchisees are granted the right to operate a restaurant using the McDonald’s System and, in most cases, the use of a restaurant facility, generally for a period of 20 years. These franchisees pay related occupancy costs, including property taxes, insurance, and maintenance. Affiliates and developmental licensees operating under license agreements pay a royalty to the Company based upon a percent of sales, and may also pay initial fees. The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material to the consolidated financial statements for periods prior to purchase and sale.

Revenues from franchised restaurants consisted of the following:

In Millions                      2013          2012              2011 ____________________________________________________________________

        
 Rents                          6,054.40      5863.50        5,718.50  

Royalties                      3,100.40     3,32.60        2929.80          
Initial fees                       76.70        68.40            64.90
Revenues from

franchised restaurants 9,231.50   8,964.50     8,713.20

 

 

Future minimum rent payments due to the Company under existing franchise arrangements are: _______________________________________________________
                         In Millions       Owned Sites       Leased Sites                Total ____________________________________________________________________

  1.                   2014                $1,321.40          1,381.80                2,703.20

  2.                   2015                  1,279.40          1,332.30                2,611.70

  3.                   2016                  1,228.50          1,278.20                2,506.70

  4.                   2017                  1,166.90          1,209.70                2,376.60

  5.                   2018                  1,121.90          1,138.60                2,260.50

                        Thereafter            9,636.40         8,405.80                 18,042.20              ————————————————————————————————————–

 Total minimum payments       $15,754.50      $14,746.40            $30,500.90

This $30.5 billion represents the future minimum payments that McDonald’s expected to receive from its franchisees as of December 31, 2013. Address the following questions:

  1. Using the element definition from the conceptual framework, should this $30.5 billion be recorded as an asset in McDonald’s 2013 balance sheet? Why or why not?

  2. If your answer to Part 1 above is yes, what measurement attributes should be used in reporting the asset?

Your well-written paper must be 2 to 3 pages in length, in addition to the title and reference pages, and be formatted according to the CSU-Global Guide to Writing and APA Requirements. Cite at least two peer-reviewed sources, in addition to the required readings for this module.

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