Question:
Pizza Inn charges an initial fee of $600,000 for a franchise, with $120,000 paid when the agreement is signed and the balance in four annual payments. The present value of the annual payments, discounted at 10%, is $380,400. The franchisee has the right to purchase $90,000 of kitchen equipment and supplies for $75,000. An additional part of the initial fee is for advertising to be provided by Pizza Inn during the next five years. The value of the advertising is $750 a month. Collectibility of the payments is reasonably assured and Pizza Inn has performed all the initial services required by the contract.
Instructions:
Prepare the entry to record the initial franchise fee. Show supporting computations in good form.