Exercise 18-39

On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Windsor Inc. for an initial franchise fee of $55,000. The amount of $8,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $9,400 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 Benjamins credit rating indicates that she can borrow money at 11% for a loan of this type.

Prepare journal entries for Windsor for 2017-related revenue for this franchise arrangement

Prepare journal entries for Windsor for 2017-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Windsor also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of $3,000.

Repeat the requirements for part (a), assuming that Windsor must provide services to Benjamin throughout the franchise period to maintain the franchise value