Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please Help answer part D. Identifying Performance Obligations and Recording Revenue from Franchise Rights The Krispy Donuts franchise has agreements with 100 franchisees across the

Please Help answer part D. image text in transcribedimage text in transcribed

Identifying Performance Obligations and Recording Revenue from Franchise Rights The Krispy Donuts franchise has agreements with 100 franchisees across the United States to operate bakeries. On January 1, 2020, Krispy Donuts grants a franchisee the right to operate a bakery in Minneapolis, Minnesota using the Krispy Donut's brand name, recipe, and other business concepts for a price of $700,000. On January 1, 2020, the franchisee made a down payment to the franchisor of $70,000 and paid the remaining $630,000 upfront fee on March 31, 2020. In exchange for the $700,000 payment, the franchisee received franchise rights, which include benefits of a national advertising campaign over the ten-year period (starting on the contract date) to promote the brand name of Krispy Donuts. The payment also includes the purchase of kitchen equipment from the franchisor (fair value of $84,000), and upfront training and assistance in setting up the franchise (fair value of $28,000). The training and assistance will be performed before the opening of the bakery. Equipment was delivered on April 1, 2020, and had a cost of $56,000. Krispy Donuts uses the residual method to measure the standalone value of the franchise rights. a. How many performance obligations are included in the franchise arrangement? 3 performance obligations b. When does the franchisor recognize revenue for each performance obligation? Sale of equipment Recognize revenue at a point in time Training and assistance Recognize revenue over time Benefits of national advertising campaign Recognize revenue over time c. Prepare the journal entries for the Krispy Donuts franchisor through the opening of the bakery on June 1, 2020. Cr. Dr. 70,000 0 70,000 0 630,000 0 630,000 Date Account Name Jan. 1, 2020 Cash Deferred Franchise Fee Revenue Mar. 31, 2020 Cash Deferred Franchise Fee Revenue Apr. 1, 2020 Deferred Franchise Fee Revenue Sales Revenue To record sale of equipment. Apr. 1, 2020 Cost of Goods Sold Inventory rocard coct of nauuinmont 84,000 0 0 84,000 56,000 0 0 56,000 0 630,000 0 84,000 70,000 0 630,000 0 0 84,000 Deferred Franchise Fee Revenue Mar. 31, 2020 Cash Deferred Franchise Fee Revenue Apr. 1, 2020 Deferred Franchise Fee Revenue Sales Revenue To record sale of equipment. Apr. 1, 2020 Cost of Goods Sold Inventory To record cost of equipment. June 1, 2020 Deferred Franchise Fee Revenue Sales Revenue 56,000 0 0 56,000 28,000 0 0 28,000 d. Assuming the franchisor has a December 31 year-end, prepare any journal entries required on December 31, 2020. Dr. Cr. Date Account Name Dec. 31, 2020 Deferred Franchise Fee Revenue Sales Revenue 0 591,000 x 0 120,000 x Check

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial and Managerial Accounting

Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren

11th Edition

9780538480901, 9781111525774, 538480890, 538480904, 1111525773, 978-0538480895

More Books

Students also viewed these Accounting questions