CASE STUDY QUESTIONS

Cheese Ahead: Frankie's Homemade Cheese Shop ("Frankie's") signed an advertising agreement with Simmons

Boards ("Owner") for billboard advertising rights along Route 33 in the town of Hampton. Frankie's has the right

to select and display advertising copy on billboard panels numbered 10 and 12 (panel numbers correspond to desig-

nated billboard locations) for a 3-year period from Jan. 1, 20X1, to Dec. 31, 20X3. In consideration for these rights,

Frankie's agrees to pay $10,000 in year 1, $12,000 in year 2, and $13,000 in year 3. Assume that Frankie's is required

to pay the annual fee on Jan. 1 of each contract year. Assuming Frankie's incremental borrowing rate is 5%, what are

the entries Frankie should record at inception of the contract, then at the end of years 1, 2, and 3?

Making the Cheese: Refer to the previous case study. Now evaluate the entries that Simmons Boards should record

at inception of the advertising agreement with Frankie's, as well as at the end of each contract year?