How much are the earned and unearned franchise fees

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Problem 1: Sheeran Company charges an initial franchise fee of $500,000 for the right to operate to operate as a franchise of Sheeran. Of this amount, $100,000 is payable when the agreement was signed and the balance is payable in a noninterest bearing note in five annual payments of $80,000 each. In return for the initial franchise fee, the franchisor will help locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide the bookkeeping services. The credit rating of the franchisee indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of $80,000 each discounted at 8% is $319,416.80. The discount represents the interest revenue to be accrued by the franchisor over the payment period. 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, collectability of the note is reasonably assured and substantial performance has occurred: how much are the earned and unearned franchise fees?

Earned,        Unearned
A. 0              500,000
B. 0              419,416.80
C. 419,416.80   0
D. 319,416.80   100,000.00

Reference no: EM132940085

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