On January 1, 20X2, ABC signed an agreement to operate as a franchisee of Ace Company for an initial franchise fee of p12, 000, 000. On the same date, ABC paid P4, 000, 000 and agreed to pay the balance in four equal annual payments of P2, 000, 000 beginning January 1, 20X3. the down payment is not refundable and no future services are required of the franchisor. ABC can borrow at 14% for a loan of this type. Present and future value factors are as follows: Present value of 1 at 14% for 4 periods 0.59 Future amount of 1 at 14% for 4 periods 1.69 Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91 What should be recorded as the acquisition cost of the franchise?
On January 1, 20X2, ABC signed an agreement to operate as a franchisee of Ace Company for an initial franchise fee of p12, 000, 000. On the same date, ABC paid P4, 000, 000 and agreed to pay the balance in four equal annual payments of P2, 000, 000 beginning January 1, 20X3. the down payment is not refundable and no future services are required of the franchisor. ABC can borrow at 14% for a loan of this type. Present and future value factors are as follows: Present value of 1 at 14% for 4 periods 0.59 Future amount of 1 at 14% for 4 periods 1.69 Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91 What should be recorded as the acquisition cost of the franchise?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- On January 1, 20X2, ABC signed an agreement to operate as a franchisee of Ace Company for an initial franchise fee of p12, 000, 000. On the same date, ABC paid P4, 000, 000 and agreed to pay the balance in four equal annual payments of P2, 000, 000 beginning January 1, 20X3. the down payment is not refundable and no future services are required of the franchisor. ABC can borrow at 14% for a loan of this type. Present and future value factors are as follows:
Present value of 1 at 14% for 4 periods 0.59
Future amount of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91
What should be recorded as the acquisition cost of the franchise?
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