On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teacake Pastries, Inc., for an initial franchise fee of $240,000. On the same date, Ahmed paid $80,000 and agreed to pay the balance in four equal annual payments of $40,000 beginning July 1, Year 5. The down payment is not refundable, and no future services are required of the franchisor. Ahmed can borrow at 14% for a loan of this type.Present value of $1 at 14% for 4 periods 0.59
Future amount of $1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of $1 at 14% for 4 periods
2.91
Ahmed should record the acquisition cost of the franchise on July 1, Year 4, at
A. $174,400
B. $270,400
C. $196,400
D. $240,000