Monitor Muffler sells franchise arrangements throughout the United States and Ca

Question

Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monitor receives $600,000 in exchange for satisfying the following separate performance obligations: franchisees have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory, franchisees receive initial training and certification as a Monitor Mechanic, and franchisees receive a Monitor Muffler building and necessary equipment. The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling price of the five-year right to operate as a Monitor Muffler establishment using the residual approach. Monitor received $75,000 on July 1, 2016, from Perkins and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins' building and train and certify Perkins by September 1, and Perkins' five-year right to operate as a Monitor Muffler establishment will commence on September 1 as well. What amount would Monitor calculate as the stand-alone selling price of the five-year right to operate as a Monitor Muffler retail establishment? What journal entry would Monitor record on July 1, 2016, to reflect the sale of a franchise to Dan Perkins? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Question 1. Franchise sells price $        600,000.00 Less: Initial Training Cost $        -15,000.00 Building and equipment $      -450,000.00 Stand alone selling price $        135,000.00 answer: $135,000 Question 2. Account Title Debit Credit Cash $   75,000.00 Notes Receivable $ 525,000.00 Training and certification Revenue $   15,000.00 Building and necessary Equipment Revenue $ 450,000.00 Franchise Right Revenue $ 135,000.00

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