Kami, Inc. charges an initial franchise fee of P500,000 for the right to operate to operate as a franchise Kami. Of this amount, P100,000 is payable when the agreement was signed and the balance is payable a noninterest bearing note in five annual payments of P80,000 each. In return for the initial franchise fe the franchisor will help locate the site, negotiate the lease or purchase of the site, supervise tl construction activity, and provide the bookkeeping services. The credit rating of the franchisee indicat that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts P80,000 each discounted at 8% is P319,416.80. The discount represents the interest revenue to accrued by the franchisor over the payment period. If the probability of refunding the initial franchise fee is extremely low, the amount of future services be provided to the franchisee is minimal, collectability of the note is reasonably assured and substant performance has occurred: The earned and unearned franchise fees would be as follows: Earned Unearned A. -0- P500,000.00 В. -0- 419,416.80 C. 419,416.80 -0-

Kami, Inc. charges an initial franchise fee of P500,000 for the right to operate to operate as a franchise Kami. Of this amount, P100,000 is payable when the agreement was signed and the balance is payable a noninterest bearing note in five annual payments of P80,000 each. In return for the initial franchise fe the franchisor will help locate the site, negotiate the lease or purchase of the site, supervise tl construction activity, and provide the bookkeeping services. The credit rating of the franchisee indicat that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts P80,000 each discounted at 8% is P319,416.80. The discount represents the interest revenue to accrued by the franchisor over the payment period. If the probability of refunding the initial franchise fee is extremely low, the amount of future services be provided to the franchisee is minimal, collectability of the note is reasonably assured and substant performance has occurred: The earned and unearned franchise fees would be as follows: Earned Unearned A. -0- P500,000.00 В. -0- 419,416.80 C. 419,416.80 -0-

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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