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How do determine the expense related to the franchise

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Reference no: EM132731008

SAMSAN TECH entered into a franchise agreement with MORNING Company on January 1, 2019 to sell McJonald products for 10 years. The initial franchise fee, which is $20,000,000, was satisfied by SAMSAN by paying $4,000,000 as down payment, and by issuing a 5-year $16,000,000, 8%, note. The agreement states that MORNING shall provide the necessary initial services, and has already substantially performed all required initial services. The agreement further states that SAMSAN shall pay MORNING 5% of its annual sales every December 31 as a continuing franchise fee. The 2019 sales of SAMSAN total to $10,000,000; and the 2020 sales total to $14,300,000.

Determine the following using the data above:

Problem 1: The expense related to the franchise (excluding the interest expense on the note payable) shall be recognized in 2019?

a. $2,500,000
b. $2,000,000
c. $3,780,000
d. $2,715,000

Problem 2: The expense related to the franchise (excluding the interest expense on the note payable) shall be recognized in 2020?

a. $2,000,000
b. $2,500,000
c. $3,780,000
d. $2,715,000

Reference no: EM132731008

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