On January 2, 2020, Cluckin' Bells Company entered into a franchise agreement with Mr. Princeton to sell thei products. The agreement provides for an initial franchise fee of P2,500,000, payable as follows: P700,000 cash to be paid upon signing of the contract, and the balance in five equal annual payments every December 31, starting December 31, 2020. Cluckin' Bells Company signs 15% interest bearing note for the balance. The agreemen further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales On October 29, the franchisor completed the initial services required in the contract at a costs of P800,000, and incurred indirect costs of P160,000. The franchisee commenced business operations on November 2, 2020. The gross sales reported to the franchisor are November sales, P82,000 and December sales, P95,000. The firs installment payment was made in due date. The collectability of the note is reasonably assured. 19. In its income statement for the year ended December 31, 2020, how much is the net income? A. 1,548,850 B. 1,810,000 C. 1,818,850 D. 1,978,850

On January 2, 2020, Cluckin' Bells Company entered into a franchise agreement with Mr. Princeton to sell thei products. The agreement provides for an initial franchise fee of P2,500,000, payable as follows: P700,000 cash to be paid upon signing of the contract, and the balance in five equal annual payments every December 31, starting December 31, 2020. Cluckin' Bells Company signs 15% interest bearing note for the balance. The agreemen further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales On October 29, the franchisor completed the initial services required in the contract at a costs of P800,000, and incurred indirect costs of P160,000. The franchisee commenced business operations on November 2, 2020. The gross sales reported to the franchisor are November sales, P82,000 and December sales, P95,000. The firs installment payment was made in due date. The collectability of the note is reasonably assured. 19. In its income statement for the year ended December 31, 2020, how much is the net income? A. 1,548,850 B. 1,810,000 C. 1,818,850 D. 1,978,850

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 7C: On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial...

See similar textbooks

Similar questions

Spath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)
On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment. Neither the fair value of the note nor the equipment is determinable. Boaters incremental borrowing rate is 9%. The asset has a useful life of 7 years. Prepare the journal entry for Boater to record the issuance of the note on January 1.
On June 1, 2020, Chesnaught entered into a franchise agreement with Quilladin Inc. to sell their products. The agreement provides for an initial franchise fee of P3,000,000 which is payable as follows: P1,000,000 cash to be paid upon signing the contract, and the balance in four equal annual installments every December 31, starting in 2020, Chesnaught signs a non-interest bearing note for the balance. The credit, rating of the franchisee indicates that the money can be borrowed at 10%. The present value factor of an ordinary annuity at 10% for 4 periods is 3.1698. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales over the six years licensing period. Quilladin incurred direct cost of P930,564 and indirect costs of P167,400. The franchisee started business operations on July 1, 2020 and was able to generate sales of P1,240,000 for 2020. The first installment payment was made in due date. Assuming that the…
On December 31, 2019, Pepe Company signed an agreement to operate as franchise of Annie’s for afranchise fee of P80,000. Of this amount, P30,000 was paid upon signing of the agreement and thebalance is payable in five annual payments of P10,000 each beginning December 31, 2019. Thepresent value of the five payments, at an appropriate rate of interest, is P36,000 on December 31,2019. The agreement provides that the down payment is not refundable, and no future services arerequired of the franchisor. The collection of the note receivable is reasonably certain. Annie’sCompany should report unearned revenue from franchise fee in its December 31, 2019, balance sheetat:
On December 31, 2018, Turks Company signed an agreement to operate as franchisee of Wendy's for a franchise fee of P80,000. Of this amount, P30,000 was paid upon signing of the agreement and the balance is payable in five annual payments of P10,000 each beginning December 31, 2019. The present value of the five payment, at an appropriate rate of interest, is P56,000 at December 31, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The collection of note receivable is reasonably certain. Wendy's Company should report unearned revenue from franchise fee in its December 31, 2019 balance sheet at: Select the correct response: P80,000 P66,000 P30,000
On November 30, 2019, Garry Company authorized BSCO Corp. to operate as a franchisee for aninitial franchise fee of P1,950,000. Of his amount, P750,000 was received upon signing the agreementand the balance, represented by a note, is due in four annual payments starting November 30, 2020.Present value of P1 at 12% for 4 periods is 0.6355. Present value of an ordinary annuity of P1 at 12%for 4 periods is 3.0374. The period of refund will elapse on January 31, 2020. The franchisor hasperformed substantially all the initial services, but the operations of the store have yet to start.Collectability of the note is reasonably certain.a. How much is the unearned franchise fee on the year ended December 31, 2019?b. How much is the earned franchise fee for the year ended December 31, 2019?
On January 1, 2020, Tine Company signed an agreement to operate as a franchisee of Sarawat Corp. for an initial franchise fee of P937,500 for 7 years. Of this amount, P175,000 was paid when the agreement was signed and the balance payable in four annual payments beginning on December 31, 2020. Tine signed a non-interest bearing note for the balance. Tine's rating indicates that borrow money at 16% for the loan of this type. Assume that substantial services amounting to P283,500 had already been rendered by Sarawat and that additional indirect franchise cost of P25,500 was also incurred. (Round PV factor to 2 decimal places). If the collection of the note is not reasonably assured, the net income for the year ended December 31, 2020 is:
On January 1, 2022, Blight Stones obtained a franchise from Doug Corporation to sell for 20 years Doug’s product. The initial franchise fee as agreed upon shall be P6,000,000, and shall be payable in cash, P1,000,000, when the contract is signed and the balance in four equal installments thereafter, as evidenced by a noninterest bearing note. The agreement provides that the franchisor shall provide the necessary initial services required under a franchise contract. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor. Revenue from the franchise for 2022 was P5,000,000. The present value factor of P1 at 12% for 4 periods 0.6355 The present value factor of P1 ordinary annuity at 12% for 4 periods 3.0373 23) How much is the initial cost of the franchise? 24) How much is the total expenses for the year 2022?
On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provides 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 downpayment of P200,000 and issued a 3-year non-interest bearing note for the balance payable in three equal annual installments starting December 31, 2020. The note has present value of P240,183 with effective interest rate of 12%. As of June 30, 2020, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred indirect costs 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. Question: If the collection of the note is reasonably assured, what is the gross profit to be recognized by the…
On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provides 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 downpayment of P200,000 and issued a 3-year non-interest bearing note for the balance payable in three equal annual installments starting December 31, 2020. The note has present value of P240,183 with effective interest rate of 12%. As of June 30, 2020, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred indirect costs 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. Question: If the collection of the note receivable is NOT reasonably assured, what is the gross profit to be…
Diamond's Pizza Inc. enters into a franchise agreement on December 31, 2019, giving Domino Corp. the right to operate as a franchisee of Diamond's Pizza for 5 years. Diamond charges Domino an initial franchisee fee of P475,000 for the right to operate as a franchisee. Of this amount, P190,000 is payable when Domino Corp. signs the agreement, and the balance is payable in five annual payments of P57,000 each on December 31. Consider the following for allocation of the transaction price at December 2019. Rights to the trade name, market area, technical and propriety know-how Services – training, etc Machinery and equipment etc. (costing, P95, 000) Total Transaction price P190,000.00 94,591.50 133,000.00 P417,591.50 The credit rating of Domino indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of P57,000 each discounted at 8% is P227, 591.50. The discount of P57,408.50 represents the interest revenue to be accrued by Diamond's…