Problem II

1.

Cash ......................................... 75,000

Unearned Franchise Fee ..................... 75,000

2.

Cash ......................................... 75,000

Note Receivable .............................. 120,000

Unearned I.I. or Discount on Note Receivable 28,881

Revenue from Franchise Fee ................. 166,119

[P{75,000 + (P30,000 x 3.0373)] = P116,119

(Table IV n = 4, i = 12%)

3.

Cash ......................................... 75,000

Note Receivable .............................. 120,000

Unearned I.I. or Discount on Note Receivable 28,881

Revenue from Franchise Fee ................. 75,000

Unearned Franchise Fee ..................... 91,119

Problem III

1. If there is a reasonable expectation that the down payment may be refunded and substantial future

services remain to be performed by Pizza, Inc., the entry should be:

Cash……….. 120,000.00

Notes receivable……………. 480,000.00

Unearned interest income (or Discount on notes receivable) 80,583.20

Unearned franchise revenue…………………….. 419,416,80

2. If the probability of refunding the initial franchise fee is extremely low, the amount of future services
to be provided to the franchisee is minimal, collectibility of the note is reasonably assured, and

substantial performance has occurred, the entry should be:

Cash……….. 120,000.00

Notes receivable……………. 480,000.00

Unearned interest income (or Discount on notes receivable) 96,699.84

Franchise revenue…………………….. 503,300.16

3. If the initial down payment is not refundable, represents a fair measure of the services already

provided, with a significant amount of services still to be performed by the franchisor in future

periods, and collectibility of the note is reasonably assured, the entry should be:

Cash……….. 120,000.00

Notes receivable……………. 480,000.00

Unearned interest income (or Discount on notes receivable) 96,699.84