Question

Cheyenne Corporation obtained a franchise from Sage Hill Inc. for a cash payment of $128,000 on April 1, 2020. The franchise grants Cheyenne the right to sell certain products and services for a period of 8 years. Prepare Cheyenne’s April 1 journal entry and December 31 adjusting entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Answer and Explanation:

The journal entries are shown below:

On April 1

Franchise $128,000

Cash $128,000

(Being the franchise obtained is recorded)

It increased the assets and decreased the assets so both the accounts are debited and credited

On December 31

Amortization expense $12,000

Franchise $12,000

(Being amortization expense is recorded)

The computation is shown below:

= $128,000 × 9 months ÷ 12 months ÷ 8 years

= $12,000

It increased the expenses and decreased the assets so both the accounts are debited and credited