E18-39 (LO8) (Franchise Fee, Initial Down Payment) On January 1, 2017, Lesley Benjamin signed an...
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E18-39 (LO8) (Franchise Fee, Initial Down Payment) On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Campbell Inc. for an initial franchise fee of $50,000. The amount of $10,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $8,000 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 Benjamins credit rating indicates that she can borrow money at 11% for a loan of this type.
Instructions
(a) Prepare journal entries for Campbell for 2017-related revenue for this franchise arrangement.
(b) PreparejournalentriesforCampbellfor2017-relatedrevenueforthisfranchisearrangement,assumingthatinaddition to the franchise rights, Campbell also provides 1 year of operational consulting and training services, beginning on the
signing date. These services have a value of $3,600.
(c) Repeat the requirements for part (a), assuming that Campbell must provide services to Benjamin throughout the fran-
chise period to maintain the franchise value.
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