Problem 4: On April 1, 2020, DEF Corporation entered into a franchise agreement. This will allow DEF to collect P200,000 cash as down payment and a 5-year, 8%, P1,000,000 note. The effective rate equals nominal rate for this note. The franchise allows the franchisee to use
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Problem 4: On April 1, 2020, DEF Corporation entered into a franchise agreement. This will allow DEF to collect P200,000 cash as down payment and a 5-year, 8%, P1,000,000 note. The effective rate equals nominal rate for this note. The franchise allows the franchisee to use DEF Corporation's intellectual property and any updates to those over a period of 10 years. Required: 10. Contract liability as of Dec. 31, 2020
11. Total carrying value of the receivables from the customer as of Dec. 31, 2020
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- Problem 10-27 (AICPA Adapted)On December 31, 2020, Ames Company leased equipment for 10 years. Theentity contracted to pay P 400, 000 annual rent on December 31, 2020 andon December 31 of each of the next time years.The lease liability was recorded at P 2, 700, 000 on December 31, 2020before the first payment.The equipment’s useful life is 12 years and the interest rate implicit in thelease is 10%.The entity used the straight line method to depreciate all equipment.1. In recording the December 31, 2021 payment by what amount shouldthe lease liability be reduced?a. 270, 000b. 230, 000c. 225, 000d. 170, 0002. What is the interest expense for 2021?a. 270, 000b. 230, 000c. 200, 000d. 03. What is the lease liability on December 31, 2021?a. 2, 700, 000b. 2, 300, 000c. 2, 130, 000Diamond'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…19 On September 30, 2024, Truckee Garbage leased equipment from a supplier and agreed to pay $125,000 annually for 15 years beginning September 30, 2025. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Truckee recorded a $1,214,031 lease liability. Determine the interest rate implicit in the lease agreement. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
- Accounting On 30 June 2022, Sock Ltd leased equipment to Shoe Ltd. The equipment was in the records of Sock Ltd on 30 June 2022 at its fair value of $123,000. The lease agreement contained the following provisions: Lease term 3 years Economic life of equipment 4 years Annual rental payment, in arrears (first payment on 29/6/23) $45,000 Residual value at end of the lease term $10,000 Residual value guaranteed by lessee $4,000 Interest rate implicit in lease 8% Present value of $1 in 3 years at 8 % 0.7938 Present value of an annuity of $1 for 2 payments at 8% 1.7833 Present value of an annuity of $1 for 3 payments at 8% 2.5771 The equipment will be depreciated by Shoe Ltd on a straight-line basis. Shoe Ltd intends to return the equipment to Sock Ltd at the end of the lease term. The lease has been classified as a finance lease by Sock Ltd. Initial direct costs for setting up the lease were incurred by both parties: $855 for Shoe…Lessee Accounting On June 1, 2020, Halifax Corporation leases equipment from Thunder Bay Manufacturing Ltd. The lease agreement indicates that Halifax can purchase the equipment at the end of the lease term for a specified price. Assume that both companies follow ASPE. Details pertaining to the lease agreement follow: Price at which Halifax can purchase the equipment at the end of the lease term $ 25,502 Annual lease payment, due at the beginning of each year $ 25,683 Halifax's incremental interest rate 8% Interest rate implicit in the lease 10% Leased asset's estimated fair value at the end of the lease term $ 89,169 Estimated useful life of equipment (in years) 12 Lease term (in years) 10 Fair value of the equipment at the inception of the lease $ 217,761 Estimated residual value of equipment at end of asset's useful life $ - Halifax uses the straight-line…Show Attempt History Current Attempt in Progress On January 1, 2020, Bridgeport Company contracts to lease equipment for 5 years, agreeing to make a payment of $146,288 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $610,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Bridgeport's incremental borrowing rate is 6%, and the implicit rate in the lease is 10%, which is known by Bridgeport. Title to the equipment transfers to Bridgeport at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. What amounts will appear on the lessee's December 31, 2020, balance sheet relative to the lease contract? BRIDGEPORT COMPANY Balance Sheet (Partial) Assets $ Liabilities 2$ $
- 1. On January 1, 20x4, Drexler signed an agreement to operate as a franchisee of Houston Copy Service,Inc., for an initial franchise fee of P255,000. Of this amount, P75,000 was paid when the agreementwas signed, and the balance is payable in four (4) annual payments of P45,000 each beginning January1, 20x5. The agreement provides that the down payment is not refundable, and no future services arerequired of the franchisor. The implicit rate for a loan of this type is 14%. The agreement also providesthat 5% of the revenue from the franchise must be paid to the franchisor annually. Drexler’s revenuefrom the franchise for 20x4 was P2,700,000. Drexler estimates the useful life of the franchise to be 10years.2. Drexler incurred P234,000 of experimental and development costs in its laboratory to develop a patentwhich was granted on January 2, 20x4. Legal fees and other costs associated with registration of thepatent totaled P49,200. Management estimates that the useful life of the patent…On January 1, 2020, Mixx Company entered into a lease for Problem 10-1 (AICPA Adapted) Lease payments are P800,000 a year for 5 years, payable in The warehouse has an estimated life of 10 years. The entity On January 1, 2020, Mixx Company entered into a len advance starting January 1, 2020. entity The warehouse has an estimated life of 10 years. The paid initial direct cost of P100,000 on January 1, 2020. The realty taxes of P40,000 a year are to be paid by the entity The lease provides for neither transfer of title to the lesses upon expiration of the lease term nor a purchase option. The underlying asset is reverted to the lessor at the expiration of the lease term. The interest rate implicit in the lease is 10%. The relevant present value factors are: PV of an ordinary annuity of 1 at 10% for 5 periods PV of an annuity of 1 in advance at 10% for 5 periods 3.79 4.17 Required: 1. Prepare journal entries on the books of Mixx Company for 2020 and 2021. 2. Prepare journal entry upon…Leases On January 1, 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cage's incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Cage. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Instructions: (a) Prepare the journal entry or entries that Cage should record on January 1, 2020. (Show two separate entries. One for recording the leased asset and one to record the initial payment). (b) Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020. Include an amortization schedule. (c) Prepare the journal entry to…
- Dominador's Pizza Inc. enters into a franchise agreement on December 31, 20x7 giving Doming Corp. the right to operate as a franchisee of Dominador's Pizza for 5 years. Dominador's charges Doming an initial franchise fee of P475,000 for the right to operate as a franchisee. Of this amount, P190,000 is payable when Doming 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 31, 20x7. Rights to the trade name, market area, technical and proprietary know-how……………………………….…......P190,000.00 Services-training, etc………………………………………...94,591.50 Machinery and equipment, etc. (costing, P95,000)……..133,000.00 Total transaction price…………………………………….. P417,591.50 The credit rating of Doming 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…Refinancing agreement: Entity C’s liabilities as of December 31, 20x1 (current year-end) include the ff: P10,000,000, 8-year loan maturing on December 31, 20x2. Entity C intends to refinance this liability on a long-term basis on February 2, 20x2. Entity C’s 20x1 financial statements were authorized for issue on March 31, 20x2 P6,000,000 loan that is payable on demand. There is no indication as of December 31, 20x1 that the creditor will demand repayment within the next 12 months. P14,000,000 loan due on December 31, 20x9. Entity C breached a loan provision accelerating the repayment of this loan within the next 12 months. However, on January 12, 20x2, the creditor granted entity C a 12-month grace period to rectify the breach, within which the creditor will not demand immediate payment. Requirement: Compute for the total current liabilities as of December 31, 20x1.