Answer:
b. a credit to Service Revenue for $11,500.
c. a credit to Sales Revenue for $38,500.
Explanation:
The customer pays 40,000 then we solve for the present value of the future payments
30,000 / 1.08 + 30,000/1.08^2 = $ 53,497.94
Is is the amount net of interest that the company is charging the franchisee
<u>The entry would be as follows</u>
Cash 40,000 debit
account receivables 53,497.94 debit
Sales Revenue 38,500 credit
Service Revenue 11,500 credit
Franchise Fee* 53,497.94 credit
As the fanchisee will not recieve further support from the franchisor It is already earned If the franchisee will receive support over the two year period then This would be unearned as the Franchisor has to provide assistance over the years to earned.
