Question
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
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.
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