Case Study #2

On January 1, 2030, ABC granted a 3 year franchise contract with XYZ. The terms of the contract are that ABC is required to pay a non-refundable initiation gee of P7,200 and a membership fee of P1,800 per month. XYZ determine that its customers on average, renew their annual membership two times before terminating their membership.   How many performance obligations exists in the contract for membership fee agreement?

On December 1, 20x1, ABC Co. enters into a franchise contracts with XYZ, Inc. The franchise provides XYZ, Inc. with the right to use ABC's trade name and sell ABC's products for 5 years. The contract requires an initial franchise fee of P120,000 and a continuing franchise fee of 3% of XYZ's sales payable at the end of each month.  The P120,000 initial franchise fee is non-refundable and payable in full ay contract inception. ABC Co., as a franchisor, has developed a customary business practice to undertake the following pre-opening activities: a. Assistance in site selection, lease negotiation, and fitting-out of the premises. b. Initial training in all facets of operating the business. c. Assistance with staff recruitment and training. d. Advertisement and promotion. e. Preparations for and professional execution of the grand opening. ABC Co. does not provide the activities above separately from the granting of the franchise right. ABC Co. does not provide the activities…

On December 1, 20x1, ABC Co. enters into a franchise contracts with XYZ, Inc. The franchise provides XYZ, Inc. with the right to use ABC's trade name and sell ABC's products for 5 years. The contract requires an initial franchise fee of P120,000 and a continuing franchise fee of 3% of XYZ's sales payable at the end of each month.  The P120,000 initial franchise fee is non-refundable and payable in full ay contract inception. ABC Co., as a franchisor, has developed a customary business practice to undertake the following pre-opening activities: a. Assistance in site selection, lease negotiation, and fitting-out of the premises. b. Initial training in all facets of operating the business. c. Assistance with staff recruitment and training. d. Advertisement and promotion. e. Preparations for and professional execution of the grand opening. ABC Co. does not provide the activities above separately from the granting of the franchise right. ABC Co. does not provide the activities…

On June 1, 2020, Chesnaught entered into a franchise agreement with Quilladin Inc. to sell their products. The agreement provides for an initial franchise fee of P3,000,000 which is payable as follows: P1,000,000 cash to be paid upon signing the contract, and the balance in four equal annual installments every December 31, starting in 2020, Chesnaught signs a non-interest bearing note for the balance. The credit, rating of the franchisee indicates that the money can be borrowed at 10%. The present value factor of an ordinary annuity at 10% for 4 periods is 3.1698. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales over the six years licensing period. Quilladin incurred direct cost of P930,564 and indirect costs of P167,400. The franchisee started business operations on July 1, 2020 and was able to generate sales of P1,240,000 for 2020. The first installment payment was made in due date. Assuming that the…

Pacific Crossburgers Inc. charges an initial fee of P70,000. Upon the signing of the agreement (which covers 3 years), a payment of P28,000 is due. Thereafter, three (3) annual payments of P14,000 are required. The credit rating of the franchisee is such that it would have to pay interest at 10% to borrow money. The franchise agreement signed on May 1, 20x5, and the franchise commences operation on July 1, 20x5. Assuming that the total franchise fee includes training services (with a value of P2,400) for the period leading up to the franchise opening and for two (2) months following opening.

On January 1, 20x1, Marc Company enters into a contract with a customer to transfer a license. The initial franchise fee is P200,000, payable as follows: 20% cash down payment upon signing of the contract, and the balance is payable in four (4) equal annual installments starting December 31, 20X1. The appropriate discount rate is 10%. The contract also requires Marc Company to transfer equipment to the customer. The equipment has a cost of P30,000 and a stand-alone selling price of P50,000. The license has a stand-alone selling price of P38,000. Marc Company regularly sells the license and the equipment separately. The equipment is transferred to the customer on January 15, 20x1, while the license is transferred to the customer on February 1, 20x1. REQUIRED: Total transaction price Transaction price allocated to license Transaction price allocated to equipment Franchise fee revenue

On January 1, 2030, ABC granted a 3 year franchise contract with XYZ. The terms of the contract are that ABC is required to pay a non-refundable initiation gee of P7,200 and a membership fee of P1,800 per month. XYZ determine that its customers on average, renew their annual membership two times before terminating their membership. Case 1: How many performance obligations exists in the contract for membership fee agreement? a. 0 b. 1 c. 2 d. 3 Case 2: The transaction price of this arrangement-non refundable upfront fee should be a. 0 b. 7,200 c. 64,800 d. 72,000 Case 3: What is the revenue per year? a. 7,200 b. 10,000 c. 12,600 d. 24,000

On January 1, 20x1, Sunbathe Co. enters into a contract with a customer to transfer a license. The initial franchise fee is P100,000 payable as follows: 20% cash down payment upon signing of the contract and the balance is payable in 4 equal annual installments starting December 31, 20x1. The appropriate discount rate is 12%. The contract states that the initial franchise fee consists of P30,000 consideration for the equipment that Sunbathe Co. will transfer to the customer and the P70,000 balance for the franchise rights. • Sunbathe Co. regularly sells the equipment and the license separately. The stand-alone selling prices are P40,000 for the equipment and P38,000 for the license. The license provides the customer the "right to use" Sunbathe's intellectual property as it exists at the point in time at which the license is granted. The equipment is transferred to the customer on January 15, 20x1, while the license is transferred to the customer on February 1, 20x1.   Provide journal…

Pacific Crossburgers Inc. charges an initial franchise fee of $70,000. Upon the signing of the agreement (which covers 3 years), a payment of $28,000 is due. Thereafter, three annual payments of $14,000 are required. The credit rating of the franchisee is such that it would have to pay interest at 10% to borrow money. The franchise agreement is signed on May 1, 2020, and the franchise commences operation on July 1, 2020. Instructions Prepare the journal entries in 2020 for the franchisor under the following assumptions. (Round to the nearest dollar.) a.    No future services are required by the franchisor once the franchise starts operations. b.    The franchisor has substantial services to perform, once the franchise begins operations, to maintain the value of the franchise. c.    The total franchise fee includes training services (with a value of $2,400) for the period leading up to the franchise opening and for 2 months following opening.

Pina Universe charges an initial franchise fee of $ 234,000. Upon the signing of the agreement, a payment of $ 26,000 is due. Thereafter, 5 annual payments of $ 41,600 are required. The credit rating of the franchisee is such that it would have to pay interest at 9% to borrow money. The franchise agreement is signed on August 1, 2020, and the franchise commences operation on October 1, 2020. Prepare the journal entries in 2020 for the franchisor under the following assumptions. a. No future services are required by the franchisee once the franchise starts operations. b. The franchisor has substantial services to perform, once the franchise begins operations, to maintain the value of the franchise. c. The total franchise fee includes training services (with a value of $ 6,900) for the period leading up to the franchise opening and for 2 months following opening

Gadubhai

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 6%. The contract calls for four rent payments of $14,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $98,000 and were expected to have a useful life of seven years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1, and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 2 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field). Round your intermediate calculations and final…

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 6%. The contract calls for four rent payments of $14,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $98,000 and were expected to have a useful life of seven years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1, and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1.Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease.                 Journal entry worksheet Record the beginning of the lease for Nath-Langstrom Services. Record the leases payment made by Nath-Langstrom Services.…

On January 2, 2020, Cluckin' Bells Company entered into a franchise agreement with Mr. Princeton to sell their products. The agreement provides for an initial franchise fee of P2,500,000, payable as follows: P700,000 cash to be paid upon signing of the contract, and the balance in five equal annual payments every December 31, starting December 31, 2020. Cluckin' Bells Company signs 15% interest bearing note for the balance. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales. On October 29, the franchisor completed the initial services required in the contract at a costs of P800,000, and incurred indirect costs of P160,000. The franchisee commenced business operations on November 2, 2020. The gross sales reported to the franchisor are November sales, P82,000 and December sales, P95,000. The first installment payment was made in due date. The collectability of the note is reasonably assured. 19. In its income…

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $16,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $102,000 and were expected to have a useful life of six years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease.2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.

On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 6%. The contract calls for four rent payments of $11,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $92,000 and were expected to have a useful life of five years with no residual value. Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease.

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 6%. The contract calls for four rent payments of $11,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $93,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. Record the beginning of the lease for Nath-Langstrom Services (January 1, 2021). Record the lease payment made by Nath-Langstrom Services (June 30, 2021). Record amortization for Nath-Langstrom Services (June 30, 2021). Record the lease payment made by Nath-Langstrom Services (December 31,…

On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. • The contract calls for four rent payments of $19,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $109,000 and were expected to have a useful life of five years with no residual value. • • Both firms record amortization and depreciation semiannually. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers…

On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $91,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. Note: Use tables, Excel, or a financial calculator. (EV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the…

On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the…

On January 1, 2024, Nath - Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually.

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Lessing, which routinely finances equipment for other firms at an annual Interest rate of 4%. The contract calls for four rent payments of $13,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $97,000 and were expected to have a useful life of five years with no residual value. Both firma record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the tabs…

On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Lessing, which routinely finances equipment for other firms at an annual Interest rate of 4%. The contract calls for four rent payments of $13,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $97,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lesse. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the tabs…