On December 31, 2011, Coffee Blends, Inc. signed an agreement authorizing Ms. De Jesus to operate as a franchisee for an initial franchise fee of P500,000. Of this amount, P200,000 was received upon signing of the agreement and the balance is due in three annual payments of P100,000 each beginning December 31, 2012. The agreement provides that the down payment (representing a fair measure of the substantial initial services rendered by Coffee Blends) is not refundable although some future services (insignificant) are yet to be performed. Ms. De Jesus’ credit rating is such that the collection of the note is reasonably assured. The present value at December 31, 2011 of the three payments discounted at 14% is P232,200. What is the amount of unearned franchise fee to be recorded by Coffee Blends, Inc. on December 31, 2011? a. P232,200 b. P0 c. P300,000 d. P422,200
On December 31, 2011, Coffee Blends, Inc. signed an agreement authorizing Ms. De Jesus to operate as a franchisee for an initial franchise fee of P500,000. Of this amount, P200,000 was received upon signing of the agreement and the balance is due in three annual payments of P100,000 each beginning December 31, 2012. The agreement provides that the down payment (representing a fair measure of the substantial initial services rendered by Coffee Blends) is not refundable although some future services (insignificant) are yet to be performed. Ms. De Jesus’ credit rating is such that the collection of the note is reasonably assured. The present value at December 31, 2011 of the three payments discounted at 14% is P232,200.
What is the amount of unearned franchise fee to be recorded by Coffee Blends, Inc. on December 31, 2011?
a. P232,200
b. P0
c. P300,000
d. P422,200
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