E18-27B (Franchise Entries)Burger Universe charges an initial franchise fee of $225,000. Upon the signing of the agreement, a payment of $25,000 is due. Thereafter, five annual payments of $40,000 are required. The credit rating of the franchisee is such

E18-27B (Franchise Entries)Burger Universe charges an initial franchise fee of $225,000. Upon the signing of the agreement, a payment of $25,000 is due. Thereafter, five annual payments of $40,000 are required.

The credit rating of the franchisee is such that it would have to pay interest at 12% 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 franchisor has minimal services to perform, the down payment is not refundable, and the collection of the note is certain.

(b) The down payment is not refundable, substantial future services are required by the franchisor, and collection of the note is reasonably certain.

(c) The down payment is not refundable, collection of the note is reasonably certain; the franchisor has performed approximately one-half of the required services.