Freys, Inc., sells a 12-year franchise to Red Company. The franchise contains many restrictions on how Red may operate its store. For instance, Red cannot use less than Grade 10 Idaho potatoes; must fry the potatoes at a constant 410 degrees; must dress store personnel in Freys-approved uniforms; and must have a Freys sign that meets detailed specifications on size, color, and construction. When the franchise contract is signed, Red makes a noncontingent $160,000 payment to Freys. During the same year, Red pays Freys $300,000-14% of Red's sales. How does Freys treat each of these payments? How does Red treat each of the payments?
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