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 above separately from the granting of the franchise right. The new franchise business started operation in December and as of December 31, 20x1, ABC has no remaining obligation or intent to refund any of the cash received and all of the services (i.e., the pre-opening activities) required under the franchise agreement have been performed. XYZ, Inc. reports total sales of P2,000,000 in December 20x1. a. The credit to Franchise Revenue on December 31, 20x1 is b. The balance of contract liability account on December 31, 20x1 is

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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 above separately from the granting of the franchise right. The new franchise business started operation in December and as of December 31, 20x1, ABC has no remaining obligation or intent to refund any of the cash received and all of the services (i.e., the pre-opening activities) required under the franchise agreement have been performed. XYZ, Inc. reports total sales of P2,000,000 in December 20x1. a. The credit to Franchise Revenue on December 31, 20x1 is b. The balance of contract liability account on December 31, 20x1 is

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