Exhibit 18-5 Morris Co.sold a franchise at an initial franchise fee of $5, 000.A down payment of $800 was received with the balance covered by the issuance of a $4, 200, 6% note, payable by the franchisee in four equal annual installments.The refund period has expired and the collectibility of the note is reasonably assured.
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Refer to Exhibit 18-5.If all material services have been substantially performed, which entry to record the franchise is correct?
A)
$\begin{array} { l r r }
\text { Cash } & 800 & \
\text { Notes Receivable } & 4,200 & \
\quad \text { Franchise Revenue } & & 5,000
\end{array}$
B)
$\begin{array} { l c c }
\text { Cash } & 800 & \
\text { Notes Receivable } & 4,200 & \
\text { Unearned Franchise Fees } & 4,200 \
\text { Franchise Revenue } & 800
\end{array}$
C)$\begin{array} { l l l }
\text { Cash } & 800 & \
\text { Unearned Franchise Fees } & 800
\end{array}$
D)$\begin{array} { l c c }
\text { Cash } & 800 & \
\text { Notes Receivable } & 4,200 & \
\quad \text { Unearned Franchise Fees } & 5,000
\end{array}$

Question

Exhibit 18-5 Morris Co.sold a franchise at an initial franchise fee of $5, 000.A down payment of $800 was received with the balance covered by the issuance of a $4, 200, 6% note, payable by the franchisee in four equal annual installments.The refund period has expired and the collectibility of the note is reasonably assured.
-
Refer to Exhibit 18-5.If all material services have been substantially performed, which entry to record the franchise is correct?
A)
$\begin{array} { l r r } 
\text { Cash } & 800 & \
\text { Notes Receivable } & 4,200 & \
\quad \text { Franchise Revenue } & & 5,000
\end{array}$
B)
$\begin{array} { l c c } 
\text { Cash } & 800 & \
\text { Notes Receivable } & 4,200 & \
\text { Unearned Franchise Fees } & 4,200 \
\text { Franchise Revenue } & 800
\end{array}$
C)$\begin{array} { l l l } 
\text { Cash } & 800 & \
\text { Unearned Franchise Fees } & 800
\end{array}$
D)$\begin{array} { l c c } 
\text { Cash } & 800 & \
\text { Notes Receivable } & 4,200 & \
\quad \text { Unearned Franchise Fees } & 5,000
\end{array}$

Quizplus · Accepted Answer

Since all material services have been substantially performed, the entire franchise fee is recognized as revenue, making option A correct. This includes both the cash received and the note receivable, totaling the initial franchise fee of $5,000.

Exhibit 18-5 Morris Co Cash 800 Notes Receivable 4,200 Franchise Revenue 5,000\begin{array} { l r r } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\quad \text { Franchise Revenue } & & 5,000\end{array} Cash Notes Receivable Franchise Revenue ​8004,200​5,000​

Exhibit 18-5 Morris Co $\begin{array} { l r r } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\quad \text { Franchise Revenue } & & 5,000\end{array}$