Problem 4

On June 1, 2020 Camellia Grey opened up Lady Grey Tea Co (LGTC) and signed a

five-year franchise agreement for the exclusive rights to sell Boba Milk Tea products in

Montreal, Quebec. The agreement stipulates that LGTC will pay the franchisor $30,000

upon signing the agreement and an ongoing royalty of 6% of monthly sales payable on

the 20th of each following month. Camellia started operating the new franchise

immediately after signing the agreement. LGTC sales for the first two months were

$20,000, and $30,000. Camellia amortizes the franchise agreement monthly on a

straight-line basis.

Required:

Prepare journal entries related to franchise fees during the first two months of operation.