1. AAA Company, a franchisor, charges an initial franchise fee of P750,000 payable P500,000 cash upon...

 

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1. AAA Company, a franchisor, charges an initial franchise fee of P750,000 payable P500,000 cash upon signing the franchise agreement and the balance, evidenced by a non-interest-bearing note, is payable in 5 semi-annual installments of P50,000. The franchisor agrees to conduct a market studies, to find a suitable location and to train employees. On July 1, 2020, an agreement was signed between AAA and BBB Company, a franchisee. Total cost incurred by the franchisor in the performance of the services as of December 31, 2020 is P150,000. The first installment on the note was made on December 31, 2020. Additional cost incurred in January 2021 is P75,000. The franchise outlet opened on February 15, 2021. The management of BBB estimated that they can borrow at the rate of 10%. 2. Use the same information in Problem 1. Determine the revenue to be recognized and the entries to record the transactions assuming: a. The probability of refunding the initial franchise fee is extremely low, the amount of future services to be rendered to the franchisee is minimal, collectivity of the note is reasonably assured and substantial performance has occurred. b. The initial down payment is not refundable and represents a fair measure of the services already provided, with a significant amount of services still to be performed by the franchisor in future periods and the collectivity of the note is reasonably assured. c. The initial down payment is not refundable and no future services are required by the franchisor, but collection of the note is uncertain. d. The initial down payment is refundable or substantial services are yet to be performed and the collection of the note is uncertain. 1. AAA Company, a franchisor, charges an initial franchise fee of P750,000 payable P500,000 cash upon signing the franchise agreement and the balance, evidenced by a non-interest-bearing note, is payable in 5 semi-annual installments of P50,000. The franchisor agrees to conduct a market studies, to find a suitable location and to train employees. On July 1, 2020, an agreement was signed between AAA and BBB Company, a franchisee. Total cost incurred by the franchisor in the performance of the services as of December 31, 2020 is P150,000. The first installment on the note was made on December 31, 2020. Additional cost incurred in January 2021 is P75,000. The franchise outlet opened on February 15, 2021. The management of BBB estimated that they can borrow at the rate of 10%. 2. Use the same information in Problem 1. Determine the revenue to be recognized and the entries to record the transactions assuming: a. The probability of refunding the initial franchise fee is extremely low, the amount of future services to be rendered to the franchisee is minimal, collectivity of the note is reasonably assured and substantial performance has occurred. b. The initial down payment is not refundable and represents a fair measure of the services already provided, with a significant amount of services still to be performed by the franchisor in future periods and the collectivity of the note is reasonably assured. c. The initial down payment is not refundable and no future services are required by the franchisor, but collection of the note is uncertain. d. The initial down payment is refundable or substantial services are yet to be performed and the collection of the note is uncertain.

Answer rating: 100% (QA)

1 The revenue to be recognized and the entries to record the transactions assuming a The probability of refunding the initial franchise fee is extreme... View the full answer