On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to op
ID: 2569089 • Letter: O
Question
On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Kingbird Inc. for an initial franchise fee of $46,000. The amount of $9,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $7,400 each, beginning January 1, 2018. The agreement provides that the down payment is nonrefundable and that no future services are required of the franchisor once the franchise commences operations on April 1, 2017. Lesley Benjamin’s credit rating indicates that she can borrow money at 9% for a loan of this type.
Prepare journal entries for Kingbird for 2017-related revenue for this franchise arrangement.
Jan 1 cash 9000
note receivable 37000
discount on note receivable 8217
unearned franchise revenue 37783
Apr 1 unearned frachise revenue 37783
franchise revenue 37783
discount on note receivable 2590
interest revenue 2590
Prepare journal entries for Kingbird for 2017-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Kingbird also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of $4,000.
April 1, 2017
Unearned Franchise Revenue 33783
Unearned Service Revenue ?
Franchise Revenue 33783
Service Revenue ?
December 1, 2017
Unearned Service Revenue ?
Service Revenue ?
Can someone help me with April 1, 2017 and December 1, 2017 journal entries please?
Explanation / Answer
(a) January 1, 2017
Cash................................................................................. 9,000
Notes Receivable............................................................. 37,000
Discount on Notes Receivable................................. 8,217
Unearned Franchise Revenue
($9,000 + $29,567)................................................. 37,783*
*Down payment made on 4/1/17....................................... $9,000.00
Present value of an ordinary annuity
($7,400 X 3.88965)................................................. 28,783.41
Total revenue recorded by Kingbird and
total acquisition cost recorded by
Lesley Benjamin................................................... $37,783.41
April 1, 2017
Unearned Franchise Revenue.......................................... 37,783
Franchise Revenue.................................................. 37,783
(b) January 1, 2017
Cash................................................................................. 9,000
Notes Receivable............................................................. 37,000
Discount on Notes Receivable................................. 8,217
Unearned Service Revenue (Training)..................... 4,000
Unearned Franchise Revenue.................................. 33,783
April 1, 2017
Unearned Service Revenue (Training)............................. 4,000
Unearned Franchise Revenue.......................................... 33,783
Franchise Revenue.................................................. 33,783
Service Revenue (Training)..................................... 4,000
December 31, 2017
Unearned Service Revenue (Training)............................. 3,000
Service Revenue...................................................... 3,000
Note: please ask in comment for any further help, thank you.
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