On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provided that the franchisee shall pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee, On January 1, 2020, the franchisee paid down payment of P200,000 and issued a 3-year noninterest bearing note for the balance payable in three equal annual installments starting December 31, 2020. The note has a present value of P240,183 with an effective interest rate of 12%.On June 30, 2020, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred an indirect cost of P22,009.The franchisee started operation on July 1, 2020 and reported sales revenue amounting to P50,000 for the year ended December 31, 2020. The franchisee paid the first installment on its due date.If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for the year ended December 31, 2020 in relation to the initial franchise fee? a.P88,037 b.P22,009 c.P66,028 d.P44,014

On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provided that the franchisee shall pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee, On January 1, 2020, the franchisee paid down payment of P200,000 and issued a 3-year noninterest bearing note for the balance payable in three equal annual installments starting December 31, 2020. The note has a present value of P240,183 with an effective interest rate of 12%.On June 30, 2020, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred an indirect cost of P22,009.The franchisee started operation on July 1, 2020 and reported sales revenue amounting to P50,000 for the year ended December 31, 2020. The franchisee paid the first installment on its due date.If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for the year ended December 31, 2020 in relation to the initial franchise fee? a.P88,037 b.P22,009 c.P66,028 d.P44,014

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 6P

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