Detailed Answer
(b) The requirement is to determine the acquisition
cost of a franchise. The cost of this franchise is the down payment
of $20,000 plus the present value of the four equal annual
payments of $10,000. The annual payments represent an annuity,
so the $10,000 annual payment is multiplied by the present
value factor of 2.91. Therefore, the franchise cost is $49,100
($20,000 + $29,100). The journal entry is
Franchise 49,100
Discount on notes payable 10,900
Notes payable 40,000
Cash 20,000