I am having problem with this exercise. I know how to calculate the present values and future values, but this problem has a lot amounts that I am not sure which one I should work on to prepare the entry as the instruction asks:
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.
Prepare the entry to record the initial franchise fee. Show supporting computations in good form.
This provides the steps for preparing entry to record the initial franchise fee