Journal Entry Practice

Question 1

Franchisor’s Journal Entry to Record Fees

Answer 1

Dr. Cash
Dr. Notes Receivable
Cr. Discount on Notes Receivable (contra asset)
Cr. Unearned Franchise fee revenue

Question 2

Correct Journal Entries for the Collection and Recognizing of Earned Royalties:

Answer 2

PAID IN B/S ONLY ADVANCE
Dr. Cash
Cr. Unearned royalty

EARNED/INCOME STATEMENT IMPACT
Dr. Unearned royalty
Cr. Earned royalty

Question 3

Franchisee’s Journal Entry to record the Franchise

Answer 3

Dr. Franchises
Dr. Discount on notes payable
Cr Notes Payable
Cr. Cash

Question 4

Journal Entry to record Goodwill Impairment

Answer 4

Dr. Loss Due to impairment

Cr. Goodwill

Question 5

INSTALLMENT SALES METHOD
1. Journal Entry to record the installment sale

2. Journal entry to recognize cash collection
3. Journal entry to record profit on collection

Answer 5

1. Dr Installment sale accounts receivable
   Cr. Inventory
   Cr. Deferred gross profit ( contra-receivable)
2. Dr. Cash
   Cr. Installment sale accounts receivable
3. Dr. Deferred gross profit
   Cr. Realized gross profit on installments sales

Question 6

COST RECOVERY METHOD
1. Journal entry to record the sale under the cost recovery method

2. Journal entry to record the 1st collection
3. Journal entry to record the 2nd collection

Answer 6

1. Dr. Cost recovery receivable
   Cr. Inventory
   Cr. Deferred gross profit
2. Dr. Cash
   Cr. Cost recovery receivable
   (Use this journal entry when the COGS amount is not recovered yet)
3. Dr. Cash
   Cr. Cost recovery receivableDr. Deferred gross profit
   Cr. Realized gross profit on cost recovery sales
   (Use these 2 entries when the COGS amount has been recovered and excess money has been recovered)

Question 7

Simple solution framework Journal Entry for Exchanges having commercial substance

Answer 7

Dr. New asset (FV of consideration given)
Dr. Accumulated depreciation of asset given up
Dr. Cash received
Dr. Loss (if any)
Cr. Old asset at historical cost
Cr. Cash given
Cr. Gain (if any)

FV of item given Plus Cash Paid EQUALS New asset cost basis

Question 8

Exchanges Lacking Commercial Substance Journal Entries

Answer 8

NO BOOT=NO GAIN RECOGNIZED JE
Dr. New Asset
Cr. Old Asset
(Items valued at Book value)

BOOT IS PAID=NO GAIN RECOGNIZED JE
Dr. New Asset (Book value PLUS cash given)
Cr. Old Asset (Book value)
Cr. Cash

BOOT IS RECEIVED [<25% RULE]=PROPORTIONAL GAIN RECOGNIZED
Dr. New Asset (Plug)
Dr. Cash
Cr. Old Asset (Book value)
Cr. Gain on exchange
{Recognized gain= Realized Gain x (Boot Received/FV Received)}

BOOT RECEIVED[>=25% RULE] ALL GAIN RECOGNIZED
Dr. New Asset (Plug AMT needed to balance)
Dr. Cash
Cr. Old Asset (Book value)
Cr. Gain on exchange

LOSSES RECOGNIZED IN FULL
Dr. New Asset (FV of Old Asset)
Dr. Loss on Exchange
Cr. Old Asset (Book value)