E18-39 (LO8) (Franchise Fee, Initial Down Payment) On January 1, 2017, Lesley Benjamin signed an agreement,...
E18-39 (LO8) (Franchise Fee, Initial Down Payment) On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Campbell Inc. for an initial franchise fee of $50,000. The amount of $10,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $8,000 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 11% for a loan of this type.
Instructions
-
(a) Prepare journal entries for Campbell for 2017-related revenue for this franchise arrangement.
-
(b) PreparejournalentriesforCampbellfor2017-relatedrevenueforthisfranchisearrangement,assumingthatinaddition to the franchise rights, Campbell also provides 1 year of operational consulting and training services, beginning on the
signing date. These services have a value of $3,600.
-
(c) Repeat the requirements for part (a), assuming that Campbell must provide services to Benjamin throughout the fran-
chise period to maintain the franchise value.
Homework Answers
| (a) | Date | General journal | Debit | Credit | ||||
| Jan 1,2017 | Cash | 10000 | ||||||
| Note receivable | (50000-10000) | 40000 | ||||||
| Discount on notes receivable | (Balancing figure) | 10433 | ||||||
| Unearned franchise revenue | (Note:1) | 39567 | ||||||
| (Initial agreement recorded) | ||||||||
| Apr 1,2017 | Unearned franchise revenue | 39567 | ||||||
| Franchise revenue | 39567 | |||||||
| (Revenue recorded) | ||||||||
| Dec 31,2017 | Discount on notes receivable | (40000-10433)*11% | 3252 | |||||
| Interest revenue | 3252 | |||||||
| (Interest revenue recorded) | ||||||||
| Note:1 | ||||||||
| Unearned franchise revenue: | ||||||||
| $ | ||||||||
| Down payment | 10000 | |||||||
| Present value of installment at 11% for 4 years | ||||||||
| (8000*3.6959) | 29567.2 | |||||||
| Total | 39567.2 | |||||||
| (b) | Date | General journal | Debit | Credit | ||||
| Jan 1,2017 | Cash | 10000 | ||||||
| Note receivable | (50000-10000) | 40000 | ||||||
| Discount on notes receivable | 10433 | |||||||
| Unearned service revenue | 3600 | |||||||
| Unearned franchise revenue | (39567-3600) | 35967 | ||||||
| (Initial agreement recorded) | ||||||||
| Apr 1,2017 | Unearned franchise revenue | 35967 | ||||||
| Unearned service revenue | 3600*(3/12) | 900 | ||||||
| Franchise revenue | 35967 | |||||||
| Service revenue | 900 | |||||||
| (Revenue recorded) | ||||||||
| Dec 31,2017 | Unearned service revenue | 3600*(9/12) | 2700 | |||||
| Service revenue | 2700 | |||||||
| (Service revenue recorded) | ||||||||
| Dec 31,2017 | Discount on notes receivable | (40000-10433)*11% | 3252 | |||||
| Interest revenue | 3252 | |||||||
| (Interest revenue recorded) | ||||||||
| c) | Date | General journal | Debit | Credit | ||||
| Jan 1,2017 | Cash | 10000 | ||||||
| Note receivable | (50000-10000) | 40000 | ||||||
| Discount on notes receivable | (Balancing figure) | 10433 | ||||||
| Unearned franchise revenue | (Note:1) | 39567 | ||||||
| (Initial agreement recorded) | ||||||||
| Dec 31,2017 | Unearned franchise revenue | (39567/5) | 7913 | |||||
| Franchise revenue | 7913 | |||||||
| (Revenue recorded for 1 year) | ||||||||
| Dec 31,2017 | Discount on notes receivable | (40000-10433)*11% | 3252 | |||||
| Interest revenue | 3252 | |||||||
| (Interest revenue recorded) | ||||||||
Add Answer to:
E18-39 (LO8) (Franchise Fee, Initial Down Payment) On January 1,
2017, Lesley Benjamin signed an agreement,...
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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...
Exercise 18-39
On January 1, 2020, Lesley Benjamin signed an agreement,
covering 5 years, to operate as a franchisee of Bonita Inc. for an
initial franchise fee of $51,000. The amount of $11,000 was paid
when the agreement was signed, and the balance is payable in five
annual payments of $8,000 each, beginning January 1, 2021. 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 January 1, 2017, Lesley Benjamin signed an agreement,
covering 5 years, to operate as a franchisee of Coronado Inc. for
an initial franchise fee of $64,000. The amount of $13,000 was paid
when the agreement was signed, and the balance is payable in five
annual payments of $10,200 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...
On January 1, 2020, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Pearl Inc. for an initial franchise fee of $36,000. The amount of $11,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $5,000 each, beginning January 1, 2021. 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...
Cullumber Diners Inc. charges an initial franchise fee of
$147000 broken down as follows:
Rights to trade name, market area, and proprietary
know-how
$69000
Training services
12000
Equipment (cost of $16100)
66000
Total initial franchise fee
$147000
Upon signing of the agreement, a payment of $69000 is due.
Thereafter, 2 annual payments of $39000 are required. The credit
rating of the franchisee is such that it would have to pay interest
of 8% to borrow money. The franchise agreement is...
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