On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to op

Question

On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Pina Inc. for an initial franchise fee of $40,000. The amount of $8,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $6,400 each, beginning January 1, 2018. The agreement provides that the down payment is nonrefundable and that no future services are required of the franchisor once the franchise commences operations on April 1, 2017. Lesley Benjamin’s credit rating indicates that she can borrow money at 8% for a loan of this type.

Prepare journal entries for Pina for 2017-related revenue for this franchise arrangement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Prepare journal entries for Pina for 2017-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Pina also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of $4,400. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Repeat the requirements for part (a), assuming that Pina must provide services to Benjamin throughout the franchise period to maintain the franchise value. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Explanation / Answer

Solution:-

(A) Cash A/c Dr. 8000

Notes Rec A/c Dr. 32000

To Discount on Notes Rec 6447

To Revenue from frenchise fee 33553 {8000 + ( 6400*3.99271)}

(B) Cash A/c Dr. 8000

Notes Rec A/c Dr. 32000

To Discount on Notes Rec 6447

To Revenue from frenchise fee 29153 (33553-4400)

To Unearned frenchise fee 4400

(C) Cash A/c Dr. 8000

Notes Rec A/c Dr. 32000

To Discount on Notes Rec 6447

To Unearned frenchise fee 33553   

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