JLC Inc., franchisor, entered into a franchise agreement with BEA, franchisee, on July 1, 2020. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon signing and the balance payable in four equal annual installments. It was agreed that the down payment is not refundable, notwithstanding lack of substantial performance of services by the franchisor. When JLC prepares its financial statements on July 31, 2020, the unearned franchise fees to be reported is

JLC Inc., franchisor, entered into a franchise agreement with BEA, franchisee, on July 1, 2020. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon signing and the balance payable in four equal annual installments. It was agreed that the down payment is not refundable, notwithstanding lack of substantial performance of services by the franchisor. When JLC prepares its financial statements on July 31, 2020, the unearned franchise fees to be reported is

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On Jan. 1, 2020, ABC Franchisor and XYZ Franchisee signed a franchise contract over the use of ABC's logos and brand in the latter's T-shirt shop. The contract requires P400,000 cash as payment from the franchisee. ABC will give the right to use its intellectual property to XYZ from April 1, 2020 to Mar. 31, 2025. If the contract is cancelled within 30 days from signing, 70% of the cash payment may be refunded. If cancelled on the 31st day and until the day before grant date, 10% can be refunded. ABC and XYZ both expect that ABC will exert effort over its marketing campaign and continue to grow its brand in the next 5 or more years. What is the compound journal entry on Dec. 31, 2020 if the contract is cancelled? [A] DR: Contract Liability – 400,000 CR: Franchise Revenue - 400,000 Contract Liability – 400,000 [B] DR: CR: Gain on Contract Cancellation – 400,000 [C] DR: Contract Liability – 400,000 CR: Franchise Revenue - 80,000 CR: Gain on Contract Cancellation - 320,000 [D] DR:…
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