Valix Finacc vol 1 Problem 20-15

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 20 Problem 20-15

Books of Franchisee

1. Franchise (3,000,000 + 3,790,000)                                                      6,790,000

    Discount on note payable                                                              1,210,000

            Cash                                                                                                                3,000,000

            Note payable                                                                                                  5,000,000

    Note payable                                                                                                          5,000,000

    Present value of note (1,000,000 x 3.79)                                                                   3,790,000

    Implied interest                                                                                                        1,210,000

2. Amortization of franchise                                                                   679,000

            Franchise (6,790,000 / 10)                                                                                   679,000

                                                                                                                                   

3. Note payable                                                                                  1,000,000

            Cash                                                                                                                1,000,000

4. Interest expense (10% x 3,790,000)                                                       379,000

            Discount on note payable                                                                                 379,000