determining acquisition cost with financing 455329
Aug 29, 2021 | Uncategorized
On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teacake Pastries, Inc., for an initial franchise fee of $240,000. On the same date, Ahmed paid $80,000 and agreed to pay the balance in four equal annual payments of $40,000 beginning July 1, Year 5. The down payment is not refundable, and no future services are required of the franchisor. Ahmed can borrow at 14% for a loan of this type.
| Present value of $1 at 14% for 4 periods |
0.59 |
| Future amount of $1 at 14% for 4 periods |
1.69 |
| Present value of an ordinary annuity of $1 |
|
| at 14% for 4 periods |
2.91 |
Ahmed should record the acquisition cost of the franchise on July 1, Year 4, at
| A. |
$174,400 |
| B. |
$270,400 |
| C. |
$196,400 |
| D. |
$240,000 |
|
