Reference no: EM132791813

Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monitor receives $600,000 in exchange for satisfying the following separate performance obligations:

(1) franchisees have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory,

(2) franchisees receive initial training and certification as a Monitor Mechanic, and

(3) franchisees receive a Monitor Muffler building and necessary equipment.

The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling price of the five-year right to operate as a Monitor Muffler establishment using the residual approach.

Monitor received $75,000 on July 1, 2021, from Perkins and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins's building and train and certify Perkins by September 1, and Perkins's five-year right to operate as a Monitor Muffler establishment will commence on September 1 as well.

Required:

Problem 1: What amount would Monitor calculate as the stand-alone selling price of the five-year right to operate as a Monitor Muffler retail establishment?

Problem 2: What journal entry would Monitor record on July 1, 2021, to reflect the sale of a franchise to Dan Perkins?

Problem 3: How much revenue would Monitor recognize in the year ended December 31, 2021, with respect to its franchise arrangement with Perkins? (Ignoreany interest on the note receivable.)