On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to op
ID: 2567555 • Letter: O
Question
On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Kingbird Inc. for an initial franchise fee of $46,000. The amount of $9,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $7,400 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 9% for a loan of this type.
Prepare journal entries for Kingbird for 2017-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Kingbird also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of $4,000.
April 1, 2017 Unearned Franchise Revenue 33783 Unearned Service Revenue ? Franchise Revenue 33783 Service Revenue ?Explanation / Answer
Working Amout$ Intial franchise fee (A) $ 46,000 Down payament (B) $ 9,000 Balance in 5 installment C=A-B $ 37,000 PV of annuity $7400@ 9% (D) $ 28,783 (3.8897*7400) Discount on notes receivable (C-D) $ 8,217 Journal Entires Date Accounts Debit$ Credit$ Jan.1,2017 Cash $ 9,000 Notes Receivables $ 37,000 Discount on notes receivable $ 8,217 Unearned Frenchise fees $ 37,783 April.1,2017 Unearned Frenchise fees $ 37,783 Frenchise fees $ 37,783 Dec.1,2017 Discount on notes receivable $ 2,590 Interest Revenue ($28783*9%) $ 2,590