Reference no: EM132768404

Question - Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise aggreement. Monitor receives $600, 000 in exchange for satisfying the following separate performance obligations: (1) franchises have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory, (2) franchises receive initial training and certification as a Monitor Mechanic, and (3) franchises receive a Monitior Muffler building and necessary equipment. The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling price of the five-year right to operate as a Monitor Muffler using the residual approach.

Monitor received $75,000 on July 1, 2018, from Perkin's and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins by September 1, and Perkin's five-year right to operate as a Monitor Muffler establishment will commence on September 1 as well.

Required -

1. What amount would Monitor calculate as the stand-alone selling price of the five year right to operate as a Monitor Muffler retail establishment?

2. What journal entry would Monitor record on July 1, 2018, to reflect the sale of a franchise to Dan Perkins?

3. How much revenue would Monitor recognize in the year ended December 31, 2018, with respect to its franchise arrangement with Perkins? (Ignore any interest on the note receivable.)