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The Krispy Donuts franchise has agreements with 100 franchisees across the United States to operate...

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Accounting

The Krispy Donuts franchise has agreements with 100 franchisees across the United States to operate bakeries. On January 1, 2020, Krispy Donuts grants a franchisee the right to operate a bakery in Minneapolis, Minnesota using the Krispy Donuts brand name, recipe, and other business concepts for a price of $400,000. On January 1, 2020, the franchisee made a down payment to the franchisor of $40,000 and paid the remaining $360,000 upfront fee on March 31, 2020. In exchange for the $400,000 payment, the franchisee received franchise rights, which include benefits of a national advertising campaign over the ten-year period (starting on the contract date) to promote the brand name of Krispy Donuts. The payment also includes the purchase of kitchen equipment from the franchisor (fair value of $48,000), and upfront training and assistance in setting up the franchise (fair value of $16,000). The training and assistance will be performed before the opening of the bakery. Equipment was delivered on April 1, 2020, and had a cost of $32,000. Krispy Donuts uses the residual method to measure the standalone value of the franchise rights.

Assuming the franchisor has a December 31 year-end, prepare journal entry required on December 31, 2020.

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