Reference no: EM132574670

Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $41,000 plus operating fees of $1,000 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 $7,000 down with the balance due over five years with interest.

Question 1: 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:

Multiple Choice

Option 1: Deferred revenue for $41,000.

Option 2: Deferred revenue for $34,000.

Option 3: Franchise fee revenue for $41,000.

Option 4: Franchise fee revenue for $7,000.