Question: On April 1 2014 Oversized Burrito Company entered into a

On April 1, 2014, Oversized Burrito Company entered into a 10-year franchise agreement with a group of individuals. The company receives a $300,000 initial franchise fee and agrees to assist in the design of the building, help secure financing, and provide management advice over the first half of the franchise agreement. A down payment of 20% of the franchise fee is due on April 1, 2014. The remaining 80% is to be payable in eight equal installments beginning on April 1, 2015. With each installment, the franchisee also remits interest of 7% of the unpaid note balance.
Assume that services to be performed by Oversized Burrito between April 1, 2014, and August 15, 2015, the date that the franchise opened, are substantial and that the installment receivable is reasonably collectible. Also assume that substantial performance of the initial services has occurred as of August 15, 2014.

1. Prepare the necessary journal entries for Oversized Burrito for April 1, 2014, when the franchise agreement is signed.
2. Prepare the necessary journal entries for August 15, 2014 (ignore any interest accruals).

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  • CreatedSeptember 10, 2014
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