Reference no: EM132808735

Problem 1: On January 1, 2021 Dairy Treats, Inc. entered into a franchise agreement with a company allowing the company to do business under Dairy Treats' name. Dairy Treats had performed substantially all required services by January 1, 2021, and the franchisee paid the initial franchise fee of $980,000 in full on that date. The franchise agreement specifies that the franchisee must pay a continuing franchise fee of $84,000 annually. What entry should Dairy Treats make on January 1, 2021 to record receipt of the initial franchise fee and the continuing franchise fee for 2021?

Option 1: Cash............................................................................................. 1,064,000
Franchise Fee Revenue............................................ 980,000
Franchise Revenue................................................... 84,000

Option 2: Cash............................................................................................. 1,064,000
Unearned Franchise Revenue ............................. 1,064,000

Option 3: Cash............................................................................................. 1,064,000
Franchise Fee Revenue............................................ 980,000
Franchise Revenue................................................... 67,200
Unearned Franchise Revenue.................................. 16,800

Option 4: Prepaid Advertising..................................................................... 16,800
Cash............................................................................................ 1,064,000
Franchise Fee Revenue............................................ 980,000
Franchise Revenue................................................... 84,000
Unearned Franchise Revenue.................................. 16,800