At the beginning of the current year, Hart Company signed an agreement to operate aa a franchise for an inital franchise fee of P6,000,000. On the same date, the entity paid P2,000,000 and areed to pay the balance in four equal annual payments of P1,000,000 at every year-end. The down payment is not refundable and no future services are required of the franchisor. The entity can borrow at 14% for a loan of this type. Presen value of 1 at 14% for 4 preiods                                              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 What amount should be recorded as initial cost of the franchise?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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At the beginning of the current year, Hart Company signed an agreement to operate aa a franchise for an inital franchise fee of P6,000,000.

On the same date, the entity paid P2,000,000 and areed to pay the balance in four equal annual payments of P1,000,000 at every year-end.

The down payment is not refundable and no future services are required of the franchisor. The entity can borrow at 14% for a loan of this type.

Presen value of 1 at 14% for 4 preiods                                              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

What amount should be recorded as initial cost of the franchise?

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