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 April 1, 2020. Lesley Benjamins credit rating indicates that she can borrow money at 9% for a loan of this type.

Prepare journal entries for Bonita for 2020-related revenue for this franchise arrangement.

Prepare journal entries for Bonita for 2020-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Bonita also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of $3,200.

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

Date Account Titles and Explanation Debit Credit Jan. 1, 2020 Debit Credit Date Account Titles and Explanation Jan. 1, 2020 Apr. 1, 2020 Dec 31, 2020 (To record service revenue) (To record interest revenue) Account Titles and Explanation Debit Credit Date Jan. 1, 2020 Dec. 31, 2020 (To record franchise revenue) (To record interest revenue)