On July 1, 2012, Ed Wynne Signed an Agreement to Operate

question 100

Multiple Choice

On July 1, 2012, Ed Wynne signed an agreement to operate as a franchisee of Kwik Foods, Inc., for an initial franchise fee of $180,000.Of this amount, $60,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $30,000 beginning July 1, 2013.The agreement provides that the down payment is not refundable and no future services are required of the franchisor.Wynne's credit rating indicates that he can borrow money at 14% for a loan of this type.Information on present and future value factors is as follows: Wynne should record the acquisition cost of the franchise on July 1, 2012 at

• A)$130,800.
• B)$147,300.
• C)$180,000.
• D)$202,800.

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Definitions:

Year 2

Typically refers to the second year of a given period, plan, or study, often used in financial and academic contexts.

Absorption Costing

A method of accounting that incorporates both variable and fixed manufacturing expenses into the pricing of a product.

Operating Income

Income from a company’s everyday business operations, calculated before taxes and interest.

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - as part of the cost of a produced unit.