On July 1,2017, Ed Wynne signed an agreement to operate as a franchisee of Kwik

Question

On July 1,2017, Ed Wynne signed an agreement to operate as a franchisee of Kwik Foods, Inc.. for an initial franchise fee of $ 900000. Of this amount, $ 300000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $ 150000 beginning July 1,2018. The agreement provides that the down payment is not refundable and no future services are required of the ranchiso v nne s credit rating n icates nas ec row money at 0 a 0 no this type. Information on present and future value factors is as follows: Present value of 1 at 14% for 4 periods Future value of 1 at 14% for 4 periods Present value of an ordinary annuity of 1 at 14% for 4 periods 0.59 1.69 2.91 Wynne should record the acquisition cost of the franchise on July 1, 2017 at $654000. $ 736500. $ 900000. $ 1014000.

Explanation / Answer

Computation of Acquisition Cost to record on Jul1 , 2017 Down Made made on July1, 2014 $3,00,000 Present Value of Annual Payment $4,36,500 ( $150000*pvf(14%,4 Y) or 2.91) Acquision cost of Franchisee $7,36,500 (300000+436500) Hence Correct Answer will be $736500

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