Question
Douglas Diners Inc. charges an initial franchise fee of $180,000 broken down as follows: Rights to trade name, market area, and proprietary know-how $ 80,000
Douglas Diners Inc. charges an initial franchise fee of $180,000 broken down as follows:
Rights to trade name, market area, and proprietary know-how | $ 80,000 |
Training services | 23,000 |
Equipment (cost of $21,600) | 77,000 |
Total initial franchise fee | $180,000 |
Upon signing of the agreement, a payment of $80,000 is due. Thereafter, two annual payments of $50,000 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 signed on August 1, 2021, and the franchise commences operation on November 1, 2021. Assuming that no future services are required by the franchisor once the franchise begins operations, the entry on November 1, 2021 would include
a. a credit to Unearned Franchise Revenue for $80,000.
b. a credit to Service Revenue for $23,000.
c. a credit to Sales Revenue for $77,000.
d. a debit to Unearned Franchise Revenue for $80,000.
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