Pizza-Iz-Us Charges an Initial Fee of $1,800,000 for a Licensing

Pizza-Iz-Us charges an initial fee of $1,800,000 for a licensing contract, with $360,000 paid when the agreement is signed and the balance in four annual payments. The present value of the annual payments, discounted at 9%, is
$1,166,000. Included in the initial fee is a $50,000 allowance for promotional services to be provided by Pizza-Iz-Us during the next five years. The value of the advertising is $1,000 a month. Collectibility of the payments is reasonably assured and Pizza-Iz-Us has performed all the initial services required by the licensing contract.
Required:
Prepare the journal entry to record the initial licensing agreement including the initial cash receipt.

Correct Answer:

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