Question #1:

Shakes Inc., franchisor, enters into a franchising agreement with Sha, franchisee, on June 30,
2014. The agreement calls for a total franchise fee of 1,000,000 of which 100,000 is payable
upon signing the contract and the balance in four equal semi-annual installments. It is agreed
that the down payment is nonrefundable notwithstanding the lack of substantial performance of
services by the franchisor.
When Shakes Inc. prepares its financial statements as of June 30, 2014, the unearned franchise
fee to be reported is ______________.
Question #2:
On July 1, 2014 Hart Corp. signed an agreement to operate as a franchisee of Ace Printers for an
initial franchise fee of 1,200,000. On the same date, Hart paid 400,000 and agreed to pay the
balance in four equal annual installments of 200,000 beginning July 1, 2015.
The down payment is nonrefundable and no future services are required of the franchisor. Hart
can borrow at 14% for a loan of this type. Present and future value factors are as follows:
Present value of 1 at 14% for 14 periods
Present value of an annuity of 1 at 14%
for 4 periods
Future value of 1 at 14% for 4 periods

0.59
2.91
1.69

At what amount should Hart record the franchise at the date of acquisition?
Question #3:
Krebs Crabs, Inc. Franchisor, entered into a franchise agreement with Liwayway Ligaya,
franchisee, on July 1, 2014. The total franchise fees agreed upon is 1,100,000 of which 100,000 is
payable upon signing and the balance payable in four equal annual installments. It was agreed
that the down payment is not refundable notwithstanding lack of substantial performance of
services by franchisor. When Krebs prepares its financial statements on July 31, 2014, the
unearned franchise fees to be reported is _______________.
Question #4:
On December 1, 2014, Zach Inc. authorized Movers Company to operate as a franchisee for an
initial franchise fee of 600,000. Of this amount, 240,000 was received upon signing the
agreement and the balance, represented by a note, is due in three annual payments of 120,000
each beginning December 31, 2015. The present value on December 1, 2014 for three annual
payment appropriately discounted at 288,000. According to the agreement, the nonrefundable
down payment represents a fair measure of the services already performed by Zach and
substantial future services are still to be rendered. However, collectability of the note is
reasonably certain.
On December 31, 2014 statement of financial position how much should Zach report as
unearned franchise fee from movers?

1. 900, 000
2. Answer: 982,000
3. Answer: 1,000,000
4. Answer: 288,000