Question

Record the transaction:

February 14: SBUX granted a license to Valentine Partners to operate a SBUX store in the City of Brotherly Love, Philadelphia, Pennsylvania. Under the terms of the agreement SBUX will assist Valentine in determining store location and train Valentine’s employees to meet SBUX standards of service before officially opening of the store. The fee for these services is $400,000 due up front. SBUX will sell coffee to Valentine on credit. Valentine will pay a 10% royalty to SBUX on every cup sold. A report of sales is due at the end of each month, but the royalty is not due until the 15th of the next month. Valentine paid the up-front fee at this date.

Balance Sheet Income Statement Date (ifany Cash Noncash given) Asser Assets 2/14 Contributed Earned surplus Revenues Expenses Net Income

Answer 1

This transaction is recorded as

Cash $400000

Service revenue $400000

It will shown in financial statement as follows

Balance sheet

Cash asset $400000

Income statement

Revenue $400000  

Expenses 0

Net income $400000