Franchises will generally have higher:

• A. royalty expenses compared to independent businesses
• B. depreciation expense on intangible assets
• C. inventory turnover ratios than manufacturing firms
• D. interest income from investments

Answer: (A)

Verified step by step guidance

1. Understand the concept of franchises: Franchises are businesses that operate under the branding and business model of a parent company, often paying fees or royalties for the right to use the brand and system.
2. Analyze royalty expenses: Franchises typically pay ongoing royalty fees to the parent company based on a percentage of sales or revenue. This is a key expense that independent businesses do not incur.
3. Consider depreciation expense on intangible assets: Franchises may have intangible assets such as franchise rights or trademarks, which are subject to amortization or depreciation over time. This is a unique accounting consideration for franchises.
4. Evaluate inventory turnover ratios: Manufacturing firms often have lower inventory turnover ratios due to the nature of production cycles, whereas franchises (especially in retail or food service) may have higher turnover due to faster sales cycles.
5. Assess interest income from investments: Franchises are less likely to generate significant interest income from investments compared to other types of businesses, as their focus is typically on operational activities rather than financial investments.