Question

Indoor Golf Centers, Inc., sells franchises. The initial franchise fee is $50,000, payable 20% down with the balance in five equal annual installments plus interest at 10% on the unpaid balance. In return for the initial fee, the corporation agrees to assist in designing and constructing an indoor golf driving range, help the franchisee obtain financing, help train a club pro, and provide management advice to the franchisee over a five-year period.

Required:
Prepare the franchisor’s entry to record the initial franchise fee, the first annual installment, and interest revenue under each of the following independent assumptions:
1. At the time the franchise is signed, none of the services promised have been provided; however, at least 80 percent of the services have been provided on the date of the first installment. Collectibility of the franchise fee is reasonably assured.
2. Same scenario as requirement 1, except that collectibility of the remaining installments cannot be estimated.
3. At the time the franchise is signed, the value of the services rendered is estimated to be at least $10,000. The remaining services are performed equally over the five-year period, and collectibility of the franchise fee is assured.
4. At the time the franchise is signed, all the services promised have been provided, and collection of the franchise fee is assured.
5. Same scenario as requirement 4, except that collectibility of the remaining installments cannot be estimated.



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  • CreatedSeptember 10, 2014
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