Question

In: Accounting

On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a...

On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Pina Inc. for an initial franchise fee of $40,000. The amount of $8,000 was paid when the agreement was signed, and the balance is payable in five annual payments of $6,400 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 8% for a loan of this type. Prepare journal entries for Pina for 2017-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Pina also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of $4,400.

(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 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Jan 1,17

Debit: cash 8000

Debit: note receivable 32000

Credit: discount on notes receivable 6447

Credit: unearned service revenue ?

Credit: unearned franchise revenue ?

apr 1, 2017

Debit: unearned franchise revenue ?

Debit: unearned service revenue ?

Credit: service revenue ?

Credit: franchise revenue ?

dec 31 2017

Debit: unearned service revenue ?

Creit: service revenue ?

Debit: discount on notes receivable 2044

Credit: interest revenue 2044

Solutions

Expert Solution

Jan 1, 17
Debit: Cash $       8,000
Debit: Note receivable $    32,000
Credit: Discount on notes receivables $       6,447
Credit: unearned sercvice revenue $       4,400
Credit: unearned franchise revenue $    29,153
Apr 1, 17
Debit: unearned franchise revenue $    29,153
Debit: unearned sercvice revenue $       1,100
Credit: Service Revenue $       1,100
Credit: Franchise revenue $    29,153
Dec 31, 17
Debit: unearned sercvice revenue $       3,300
Debit: Service Revenue $       3,300
Credit: Discount on notes receivables $          474 =$6,400-($6,400*1/1.08)
Credit: Interest revenue $          474

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