Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash pa
ID: 2501436 • Letter: G
Question
Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2014. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years. Prepare Gershwin’s April 1 journal entry and December 31 adjusting entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date
Account Titles and Explanation Debit Credit
Apr. 1 ___________________ ___________ ____________
_________________________ _____________ _____________
Dec. 31 ___________________ _____________ ______________
___________________________ _____________ _______________
Explanation / Answer
Gershwin Corporation
Date
Account Titles and Explanation
Debit
Credit
April 1, 2014
Franchise
120,000
Cash
120,000
To record the purchase of franchise
December 31,2014
Franchise Amortisation Fee
(120,000/8 x 9/12)
11,250
Franchise
11,250
To record the amortisation of franchise cost for the reporting period.
Franchise is an intangible cost. Cost of franchise is capitalised and it is amortised over the useful life of contract.
Date
Account Titles and Explanation
Debit
Credit
April 1, 2014
Franchise
120,000
Cash
120,000
To record the purchase of franchise
December 31,2014
Franchise Amortisation Fee
(120,000/8 x 9/12)
11,250
Franchise
11,250
To record the amortisation of franchise cost for the reporting period.
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