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Cheese Ahead Frankie’s Homemade Cheese Shop (“Frankie’s”) signed an advertising agreement with Simmons Boards (“Owner”) for billboard...

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Accounting

Cheese Ahead Frankie’s Homemade Cheese Shop (“Frankie’s”) signedan advertising agreement with Simmons Boards (“Owner”) forbillboard advertising rights along Route 33 in thetown of Hampton. Frankie’s has the right to select anddisplay advertising copy on billboard panels numbered 10and 12 (panel numbers correspond to designated billboard locations)for a 3-year period from Jan. 1, 20X1, to Dec. 31,20X3. In consideration for these rights, Frankie’sagrees to pay $10,000 in year 1, $12,000 in year 2, and$13,000 in year 3. Assume that Frankie’s is required topay the annual fee on Jan. 1 of each contractyear. Assuming Frankie’s incremental borrowingrate is 5%, what are the entries Frankie should record atinception of the contract, then at the end of years 1, 2, and3?

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