C.600,000
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On January 1, 2021, an entity granted franchise to a franchisee. The franchise agreement requires the franchisee to pay a non-refundable initial franchise fee of P1,500,000 and sales-based royalty of 8% of the sales of the franchisee. The franchisee paid P500,000 upon signing of the agreement and the balance payable in four equal annual installments starting December 31, 2021. The franchisee’s credit rating indicates that he can borrow money at 7% for a loan of this type.
In relation to the non-refundable initial franchise fee, the franchise agreement required the entity to render the following distinct performance obligations:
· To construct the franchisee’s stall with stand-alone selling price of P600,000.
· To deliver 20,000 units of raw materials to the franchisee with stand-alone selling price of P750,000.
· To allow the franchisee the access to the entity’s tradename for a period of ten years starting January 1, 2021 with stand-alone selling price of P150,000.
On June 30, 2021, the entity completed the construction of the stall of the franchisee. As of December 31, 2021, the entity was able to deliver 6,000 units of raw materials to the franchisee. For the year ended December 31, 2021, the franchisee reported sales revenue amounting to P600,000.
How much of the transaction price will be allocated to the construction of the franchisee’s stall?
A.673,401
B.538,721
C.600,000
D.0
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- 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 January 1, 2021, Mrs. Erich entered into a franchise agreement with KK to market their products. The agreement provides for an initial fee of P15,500,000 payable as follows: P6,500,000 to be paid upon signing of the contract and the balance in five equal annual payments every end of the year starting December 31, 2021. Mrs. Erich signs a non-interest bearing notes for the balance. His credit rating indicates that he can borrow money at 15% interest for a loan of this type. The present value of an annuity of P1 at 15% for 5 periods is 3.352. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of the monthly gross sales. On August 31, the franchiser completed the initial services required in the contract at a cost of P7,290,120 and incurred indirect cost of P475,000. The franchisee commenced business operations on November 30, 2021. The gross sales reported to the franchisor were P1,800,000 for December, 2021. The first installment…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 down payment 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 a present value of P240,183 with an 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 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 net income to be reported…
- 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…A Franchisor entered into a franchise agreement with B, franchisee, on March 31, 2021. The total franchise fee is P500,000, of which P100,000 is payable upon signing and the balance in four equal annual installments. The down payment is refundable in the event the franchisor fails to render services and none thus far had been rendered. When B's prepares its financial statements on March 31, 2021, the franchise fee revenue to be reported is?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…On January 2, 2019, SD Company signed an agreement to operate as a franchisee of TQ Products, inc. 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, 2019. SD signed a non-interest bearing note for the balance. SD’s rating indicates that he can borrow money at 16% for the loan of this type. Assume that substantial services amounting to P283,500 had already been rendered by TQ Products and that additional indirect franchise cost of P25,500 was also incurred. PV factor is 2.80. If the collection of the note is not reasonably assured, the net income for the year ended December 31, 2019 isEach of Potter Pie Co.'s 21 new franchisee contracted to pay an initial franchise fee of P30,000. By December 31, 2020, each franchisee had paid a non-refundable P10,000 fee and signed a note to pay P10,000 principal plus the market rate of interest on December 31, 2021 and December 31, 2022. Experience indicates that one franchise will default on the additional payments. Services for the initial franchise fee will be performed in 2021. What amount of net unearned franchise fees would Potter report at December 31, 2020? a.610,000 b.600,000 c.630,000 d.400,000
- On January 2, 2020, Cluckin' Bells Company entered into a franchise agreement with Mr. Princeton to sell their 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 agreement 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 first installment payment was made in due date. The collectability of the note is reasonably assured. 19. In its income…On January 1, 2020, an entity granted a franchise to a franchisee. The franchise agreement requires the franchisee to pay a non refundable upfront fee in the amount of P400,000 and on-going payment of royalties equivalent to 5% of the sales of the franchisee. The franchisee paid the non refundable upfront fee on January 1, 2020. In relation to the non refundable upfront fee, the franchise agreement requires the entity to render the following performance obligations: a) To construct the franchisee's stall with stand-alone selling price of P200,000 b) To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price of P250,000 c) To allow the franchisee to use the entity tradename for a period of 10 years starting January 1, 2020 with stand-alone selling price of P50,000. On June 30, 2020, the entity completed the construction of the franchisee's stall. As of December 31, 2020, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the…Green Inc. granted a franchise to Goblin Inc. to operate its registered business of barbershop. The contract was signed on January 1, 2020 with initial franchise fee of P500,000 payable in P200.000 cash and the balance in five equal semi-annual installments every June 30 and December 31. The noninterest bearing promissory note (reasonably assured) has implicit rate of 10% (PV Factor-4.32948). The contract provides that Goblin Inc. shall pay a contingent franchise fee equal to 5% of the revenue from the barber shop. Goblin Inc. reported a revenue in the amount of P100.000 during 2020. Green Inc. has substantially performed all the services required under the franchise contract. What is the total income to be recognized by Green Inc. for the year ended December 31, 2020? On January 1, 2020, a franchisor entered into a franchise agreement with a franchisee. The contract requires the franchisee to pay a non-refundable upfront fee of P900,000 at the date of contract signing and on-going…
