Question: On December 31 2014 Simmons Inc authorized Jensen to operate

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.

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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