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Buffalo Inc. charges an initial franchise fee of $88,000. Upon the signing of the agreement (which covers 3 years), a payment of $35,200 is due.
Buffalo Inc. charges an initial franchise fee of $88,000. Upon the signing of the agreement (which covers 3 years), a payment of $35,200 is due. Thereafter, 3 annual payments of $17,600 are required. The credit rating of the franchisee is such that it would have to pay interest at 8% to borrow money. The franchise agreement is signed on May 1, 2020, and the franchise commences operation on July 1, 2020. Click here to view factor table. Prepare the journal entries in 2020 for the franchisor under the following assumptions. (a) (b) No future services are required by the franchisor once the franchise starts operations. The franchisor has substantial services to perform, once the franchise begins operations, to maintain the value of the franchise. The total franchise fee includes training services (with a value of $1,700) for the period leading up to the franchise opening and for 2 months following opening. (c) (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 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.) No. Date Account Titles and Explanation Debit Cred (a) May 1, 2020 Cash 35200 Notes Receivable 52800 Discount on Notes Receivable Unearned Franchise Revenue Jul 1, 2020 Unearned Franchise Revenue Franchise Revenue (b) May 1, 2020 Cash Notes Receivable Discount on Notes Receivable Unearned Franchise Revenue Dec 31, 2020 Unearned Franchise Revenue Franchise Revenue (c) May 1, 2020 Cash Notes Receivable Discount on Notes Receivable Unearned Sales Revenue Unearned Franchise Revenue Jul. 1, 2020 Unearned Franchise Revenue Unearned Service Revenue Franchise Revenue Service Revenue Sep. 1, 2020 Unearned Service Revenue Service Revenue
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