Question

Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $36,000 plus operating fees of $500 per month. The initial fee covers site selection, training, computer and accounting software, and on-site consulting and troubleshooting, as needed, over the first five years. On March 15, 2020, Tim Cruise signed a franchise contract, paying the standard $6,000 down with the balance due over five years with interest. Assuming that the initial services to be performed by Flapper Jack's subsequent to the signing are substantial and that collection of the receivable is reasonably assured, the journal entry required at signing would include a credit to

Answer 1

Answer:

The journal entry will involve the credit to Unearned franchise fee revenue which amounts to $36,000

Explanation:

The journal entry which is to be recorded for signing the substantial and the collection of note receivable is as:

March 15, 2020

Cash A/c......................................Dr    $36,000

   Unearned franchise fee revenue A/c......Cr   $36,000

As cash is received and that amounts to $6,000, the remaining balance amount of $30,000 being debited to Note receivable will be recognized during the year as and when received. And the Unearned franchise fee revenue for $36,000 is credited because signing date and the performance is yet pending.