Reference no: EM132619669

A new franchisee has agreed to a Store Development Agreement (SDA). The terms of the agreement are as follows:

1. An initial non-refundable franchise fee of $1,000,000 is payable on signing the SDA, December 30, 2018 (the first day of fiscal 2019).
2. The franchisee will open restaurants on December 30, 2018.
3. The franchise agreement has a twenty-year term. That is, the SDA runs from December 30, 2018 through December 26, 2038.
4. The franchise agreement can be renewed or transferred for a fee of $60,000, payable to Dunkin'. Such payments will be made in cash on the date of the transfer.
5. Each quarter, the franchisee must pay a royalty fee to Dunkin' equal to 5% of gross restaurant sales. The payment is to be made on the fifth business day after the end of each quarter.

Question 1: Using information in the financial statements and notes, provide the journal entry, or entries, Dunkin' must have made for the following transactions and events. Assume that Dunkin' closes its books quarterly. You do not need to consider closing entries. Use Dunkin's financial statement line items as account titles where possible. If no entry is required, explain why. Indicate whether each account you use is an asset (A), liability (L), owners' (shareholders') equity (OE), revenue (i.e., positive net income impact) (R), or expense (i.e., negative net income impact) (E) account. Be sure to state any assumptions you make.

Question 2: Provide the entry, or entries, Dunkin' would record on December 30, 2018, the date the SDA is signed.