Exercise 18A-31

Pacific Crossburgers Inc. charges an initial franchise fee of $45,500. Upon the signing of the agreement (which covers 3 years), a payment of $18,200 is due. Thereafter, three annual payments of $9,100 are required. The credit rating of the franchisee is such that it would have to pay interest at 10% to borrow money. The franchise agreement is signed on May 1, 2014, and the franchise commences operation on July 1, 2014. Prepare the journal entries in 2014 for the franchisor under the following assumptions.

A) The franchisor has substantial services to perform, once the franchise begins operations, to maintain the value of the franchise.

May 1, 2014

Cash	18200
Notes Receivable	27300
Unearned Franchise Revenue		40830
Disacount on Notes Receivable		4670
Dec. 31, 2014 Unearned Franchise Revenue	??
Franchise Revenue		??

The total franchise fee includes training services (with a value of $2,400) for the period leading up to the franchise opening and for 2 months following opening

May 1, 2014

Cash	18200
Notes Receivable	27300
Unearned Service Revenue		2400
Discount on Notes Receivable		4670
Unearned Franchise Revenue		38430

July 1, 2014

Unearned Franchise Revene	38430
Unearned Service Revenue	??
Franchise Revenue		38430
Service Revenue		??

Sept. 1, 2014

Unearned Service Revenue	??
Service Revenue		??