SHAWARMA Inc. sells franchises to independent operators. The contractwith the franchise includes the following provisions: 1. The franchise is charged an initial franchise fee of P120,000. Of this amount, P20,000 is payable when the agreement is signed and a P20,000, zero-interest bearing note, payable at the end of 5 subsequent years. 2. All of the initial franchise fee collected by the company is to be refunded and the remaining obligation cancelled if, for any reason, the franchise becomes unprofitable. 3. In return, for the initial franchise fee, the franchisor agrees to (a) assist the franchisee in selecting the location for the business, (b) negotiate the lease of the land, (c) obtain financing and assist with building design, (d) supervise construction, establish accounting and tax records, and (f) provide expert advice over a 5-year period relating to such matters as employee and management training, quality, control and promotion. This continuing involvement by the franchisor helps maintain the brand value for the franchise. 4. In addition to the initial franchise fee, the franchisee is required to pay the franchisor a monthly fee of 2% of sales for continuing services. 5. Management of the franchisor estimates that the value of the services rendered to the franchisee at the time the contract is signed amounts to at least P20,000. All franchisees to date have opened their locations at the scheduled time, and none have defaulted on any of the notes receivable. The credit ratings of all franchisees would entitle them to borrow at the current interest rate of 10%. The present value of an ordinary annuity of five annual receipts of P20,000, each discounted at 10% is P75,816 Questions: 1.What is the amount of franchise revenue assuming the franchise agreement is signed at the beginning of the year? A. Zero C. 100,000 B. 95,816. D. 120,000 2.If the franchisor completes the franchise startup tasks and the franchise opens on July 1 of the current year, what is the current year’s amount of franchise revenue? A. Zero C. 95,816 B. 20,000 D. 100,000
Please answert it in good accounting form. Thankyou
Problem 5
SHAWARMA Inc. sells franchises to independent operators. The contractwith the franchise includes the following provisions:
1. The franchise is charged an initial franchise fee of P120,000. Of this amount, P20,000 is payable when the agreement is signed and
a P20,000, zero-interest bearing note, payable at the end of 5 subsequent years.
2. All of the initial franchise fee collected by the company is to be refunded and the remaining obligation cancelled if, for any
reason, the franchise becomes unprofitable.
3. In return, for the initial franchise fee, the franchisor agrees to (a) assist the franchisee in selecting the location for the business, (b) negotiate the lease of the land, (c) obtain
financing and assist with building design, (d) supervise construction, establish accounting and tax records, and (f) provide expert advice over a 5-year period relating to such matters as employee and management training, quality, control and promotion. This continuing involvement by the franchisor helps maintain the brand value for the franchise.
4. In addition to the initial franchise fee, the franchisee is required to pay the franchisor a monthly fee of 2% of sales for continuing services.
5. Management of the franchisor estimates that the value of the services rendered to the franchisee at the time the contract is signed amounts to at least P20,000. All franchisees to date have opened their locations at the scheduled time, and none have defaulted on any of the notes receivable. The credit ratings of all franchisees would entitle them to borrow at the current interest rate of 10%. The present value of an ordinary annuity of five annual receipts of P20,000, each discounted at 10% is P75,816
Questions:
1.What is the amount of franchise revenue assuming the franchise agreement is signed at the beginning of the year?
A. Zero C. 100,000
B. 95,816. D. 120,000
2.If the franchisor completes the franchise startup tasks and the franchise opens on July 1 of the current year, what is the current
year’s amount of franchise revenue?
A. Zero C. 95,816
B. 20,000 D. 100,000
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