Question

On December 31, 2014, Simmons, Inc., authorized Jensen to operate a franchise for an initial franchise fee of $300,000. Of this amount, $50,000 was received upon signing the agreement and the balance, represented by a note, is due in five annual payments of $50,000 each, beginning December 31, 2015. The present value on December 31, 2014, of the five annual payments appropriately discounted is $190,000. According to the agreement, the nonrefundable down payment represents the fair value of the services already performed by Simmons; however, substantial future services are required of Simmons. Collectibility of the note is reasonably certain.

Required:
In Simmons’s December 31, 2014, balance sheet, at what amount should the unearned franchise fees from Jensen’s franchise be reported?



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  • CreatedSeptember 10, 2014
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