On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teaca

Question

On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teacake Pastries, Inc., for an initial franchise fee of $240,000. On the same date, Ahmed paid $80,000 and agreed to pay the balance in four equal annual payments of $40,000 beginning July 1, Year 5. The down payment is not refundable, and no future services are required of the franchisor. Ahmed can borrow at 14% for a loan of this type. Present value of $1 at 14% for 4 periods 0.59 Future amount of $1 at 14% for 4 periods 1.69 Present value of an ordinary annuity of $1 at 14% for 4 periods 2.91 Ahmed should record the acquisition cost of the franchise on July 1, Year 4, at A. $174,400 B. $270,400 C. $196,400 D. $240,000 0.59 1.69 at 14% for 4 periods 2.91 On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teacake Pastries, Inc., for an initial franchise fee of $240,000. On the same date, Ahmed paid $80,000 and agreed to pay the balance in four equal annual payments of $40,000 beginning July 1, Year 5. The down payment is not refundable, and no future services are required of the franchisor. Ahmed can borrow at 14% for a loan of this type. Present value of $1 at 14% for 4 periods 0.59 Future amount of $1 at 14% for 4 periods 1.69 Present value of an ordinary annuity of $1 at 14% for 4 periods 2.91 Ahmed should record the acquisition cost of the franchise on July 1, Year 4, at A. $174,400 B. $270,400 C. $196,400 D. $240,000

Explanation / Answer

80000 + 40000 * (0.59)^(4/4) + 40000 * (0.59)^(3/4) + 40000 * (0.59)^(2/4) + 40000 * (0.59)^(1/4) = 196.3091252

therefor, C

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