Question

Pacific Crossburgers Inc. charges an initial franchise fee of $70,000 at the beginning of the year. Upon the signing of the agreement, a payment of $28,000 is due. Thereafter, three annual payments of $14,000 are required at the end of each year. The credit rating of the franchisee is such that it would have to pay interest at 10% to borrow money.

Instructions
Prepare the entries to record the initial franchise fee on the books of the franchisor under the following assumptions.
(a) The down payment is not refundable, no future services are required by the franchisor, and collection of the note is reasonably assured.
(b) The franchisor has substantial services to perform, the down payment is refundable, and the collection of the note is very uncertain.
(c) The down payment is not refundable, collection of the note is reasonably certain, the franchisor has yet to perform a substantial amount of services, and the down payment represents a fair measure of the services already performed.



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  • CreatedJune 17, 2013
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