On January 1, 2019, Daisy company signed an agreement to operate as a franchisee for an initial franchise fee of 9,600,000 for a period of 10 years. Of this amount 3,600,000 was paid when the agreement was signed and the balance payable in five annual installments of 1,200,000 at every year-end. The franchisee signed a non-interest bearing note for the balance. The market rate of interest for this note is 10%. The PV of 1 at 10% for 5 periods is 0.62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. In return for the initial franchise fee, the franchisor will help in locating the site, negotiate the lease or purchase the site, supervise the construction activity and provide training to employees. The initial services required of the franchisor are substantially performed. What is the amount of amortization of franchise in 2019?
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On January 1, 2019, Daisy company signed an agreement to operate as a franchisee for an initial franchise fee of 9,600,000 for a period of 10 years. Of this amount 3,600,000 was paid when the agreement was signed and the balance payable in five annual installments of 1,200,000 at every year-end. The franchisee signed a non-interest bearing note for the balance. The market rate of interest for this note is 10%. The PV of 1 at 10% for 5 periods is 0.62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. In return for the initial franchise fee, the franchisor will help in locating the site, negotiate the lease or purchase the site, supervise the construction activity and provide training to employees. The initial services required of the franchisor are substantially performed.
What is the amount of amortization of franchise in 2019?
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