On January 1, 2020, Zoe Robinson signed a 10-year franchise agreement that gave her the exclusive rights
Question:
On January 1, 2020, Zoe Robinson signed a 10-year franchise agreement that gave her the exclusive rights to sell Exclaim donuts in Halifax, Nova Scotia. The terms of the agreement required Zoe to pay the franchisor $30,000 upon signing the agreement and an ongoing royalty of 7% of net annual sales payable on the 15th of the month following year-end. Zoe must also contribute 2% of her net sales to the Exclaim sales and marketing fund, again, payable on the 15th of the month following year-end.
Zoe amortizes the franchise agreement on a straight-line basis. Her net sales for 2020 totalled $850,000.
Required:
a. Assuming that Zoe prepares adjusting entries only at year-end, prepare the required journal entries for 2020.
b. Prepare journal entries to record the payment of the franchise and marketing fee in 2021.
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