FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Related questions
Question
thumb_up100%
On January 1, 2020, 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, 2021. 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, 2020. Lesley Benjamin's credit rating indicates that she can borrow money at 11% for a loan of this type.
Instructions
a. Prepare
b. Prepare journal entries for Campbell for 2020-related revenue for this franchise arrangement, assuming that in addition 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 franchise period to maintain the franchise value.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- On January 1, 2025, Barbara Brown signed an agreement, covering 5 years, to operate as a franchisee of Ivanhoe Inc. for an initial franchise fee of $51,000. The amount of $11,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $8,000 each, beginning January 1, 2026. 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, 2025. Barbara Brown's credit rating indicates that she can borrow money at 7% for a loan of this type. Click here to view the factor table. Prepare journal entries for Ivanhoe for 2025-related revenue for this franchise arrangement. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the…arrow_forwardOn July 1, 2020, Wash Co. grants a franchisee the right to sell Wash Co.'s products in a specific market over a period of 10 years. The franchise contract required an upfront fee of P800,000, which includes P100,000 for equipment. The amount reflects the stand-alone selling price of the equipment. in addition, the franchisee will pay 10% sale-based royalty. Wash Co. has granted similar rights to other franchisees in other locations. Wash Co. regularly undertakes activities that promote the brand name nationally. Wash delivers the equipment to the franchisee on July 15, 2020. The franchisee starts selling the products on August 1, 2020 and reports total sales of P600,000 for the year. How much total revenue is recognized from the contract in 2020?arrow_forwardIn 2023, Chaya Corporation, an accrual basis, calendar year taxpayer, provided services to clients and earned $58,500. The clients signed notes receivable to Chaya that have a fair market value of $49,725 at year-end. In addition, Chaya sold a 36-month service contract on April 1, 2023, and received payment in full of $28,080. Do not round any division. If required, round your final answer to the nearest dollar. How much gross income does Chaya report from these transactions in 2023? 1. From the services to clients: $fill in the blank 1 2. From the service contract: Sarrow_forward
- Sally Lawn Services has a formal agreement with Mr. Bizza to treat his lawn on October 31 and November 30, 2021. The date of the agreement was October 1, 2021. The agreed upon cost of the total service is $ 1,000, $250 to be paid on October 31 and the remaining $750 to be paid on November 30. Although not required as part of the agreement, Mr. Bizza made an advance payment of $500 to Sally Lawn Services on October 1, 2021. Assuming Sally Lawn Services uses the accrual basis of accounting, Sally Lawn Services should record deferred revenue of $250 on October 31. True Falsearrow_forwardmpany sells televisions at an average price of $976 and also offers to each customer a separate 3 - year warranty contrac at requires the company to perform periodic services and to replace defective parts. During 2025, the company elevisions and 189 warranty contracts for cash. It estimates the 3 - year warranty costs as $18 for parts and $28 for labor, ints for warranties separately. Assume sales occurred on December 31, 2025, and straight-line recognition of warranty occurs.arrow_forwardOn January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. The lessor grants nine months of free rent, how much is the rent income in 2021?arrow_forward
- Please help mearrow_forwardDiamond's Pizza Inc. enters into a franchise agreement on December 31, 2019, giving Domino Corp. the right to operate as a franchisee of Diamond's Pizza for 5 years. Diamond charges Domino an initial franchisee fee of P475,000 for the right to operate as a franchisee. Of this amount, P190,000 is payable when Domino Corp. signs the agreement, and the balance is payable in five annual payments of P57,000 each on December 31. Consider the following for allocation of the transaction price at December 2019. Rights to the trade name, market area, technical and propriety know-how Services – training, etc Machinery and equipment etc. (costing, P95, 000) Total Transaction price P190,000.00 94,591.50 133,000.00 P417,591.50 The credit rating of Domino indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of P57,000 each discounted at 8% is P227, 591.50. The discount of P57,408.50 represents the interest revenue to be accrued by Diamond's…arrow_forwardOn October 1, 2018, the Submarine Sandwich Company entered into a franchise agreement with an individual.In exchange for an initial franchise fee of $300,000, Submarine will provide initial services to the franchisee toinclude assistance in design and construction of the building, help in training employees, and help in obtainingfinancing. Ten percent of the initial franchise fee is payable on October 1, 2018, with the remaining $270,000payable in nine equal annual installments beginning on October 1, 2019. These installments will include interestat an appropriate rate. The franchise opened for business on January 15, 2019.Required:Assume that the initial services to be performed by Submarine Sandwich subsequent to October 1, 2018, are substantial and that collectibility of the installment receivable is reasonably certain. Substantial performance of theinitial services is deemed to have occurred when the franchise opened. Prepare the necessary journal entries forthe following dates…arrow_forward
- (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. Theagreement 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 11% for a loan of this type.Instructions(a) Prepare journal entries for Campbell for 2017-related revenue for this franchise arrangement.(b) Prepare journal entries for Campbell for 2017-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Campbell also provides 1 year of operational consulting and training services, beginning on the signing date.…arrow_forwardOn January 2, 2021, A Company signed an agreement to operate as a franchisee of B for an initial franchise fee of P2,250,000 for 10 years. Of this amount, P420,000 was paid when the agreement was signed and the balance payable in four annual payments beginning on December 31, 2021. The company issued a promissory note for the balance, the relevant interest rate being 24%. Assume that substantial services amounting to P333,960 had already been rendered by B and that additional indirect franchise cost of P56,400 was also incurred. The franchisee started operations during 2021 with a total sales of P360,000. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of its gross sales. If needed, the PV factor is 2.40. Assuming the note is non-interest-bearing and its collection is reasonably assured, calculate the net income reported by B on the franchise for the year ended December 31, 2021. Assuming the note is interest-bearing and its…arrow_forwardScupper Farms, the lessee, and Tyrrell Equipment, the lessor, sign a lease agreement on January 1, 2019, that provides for Scupper to lease a cultivator from Tyrrell. The lease terms, provisions, and other related events are as follows: The lease is noncancelable and has a term of 6 years. The annual rentals are $55,000 payable at the beginning of each year. Scupper agrees to pay all executory costs directly to a third party, which are expected to be $1,100 annually, including property taxes of $500, insurance of $350, and maintenance of $250. These costs are paid each year on November 1. The cultivator has an estimated economic life of 6 years. Scupper guarantees a residual value of $60,000 at the end of 6 years. Scupper believes it is probable that it will pay $15,000 cash as a result of this guarantee. The interest rate implicit in the lease is 14%, which is known by Scupper. Scupper’s incremental borrowing rate is 15%, and it uses the sum-of-the-years’-digits method to record…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education