Accounting for Franchise Operations - Franchisor 10. Water Co. enters into the following three franchise agreements...

 

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Accounting for Franchise Operations - Franchisor 10. Water Co. enters into the following three franchise agreements on July 1, 20x1: Franchisee ● . ● ● A B C Totals Probability of collection Reasonably assured Uncertain Significantly uncertain Cash down payment 20,000 20,000 20,000 60,000 Present value of a. 74,879 b. 76,982 note 60,747 48,037 33,801 142,585 Additional information: The down payments are non-refundable and are due at contract inception. The discount rate on all the notes is 12% and the first installment payments are due on July 1, 20x2. 407 Direct costs incurred 32,000 25,000 21,520 78,520 At contract inception, Water expects to provide Franchisee B a price concession and concludes that it is probable that Franchisee B will pay half of the note. The adjusted present value of the note is P24,018. The discount rate is 12%. The nature of the licenses is to provide the customers the 'right to use' Water's intellectual property as it exists at grant date. Water transfers the licenses to the customers on July 1, 20x1. c. 78,312 d. 80,921 How much is the total profit recognized from the three contracts in 20x1? PROBLEM 5: CLASSROOM ACTIVITY INSTRUCTIONS: 1. Find a study partner. 2. Imagine that you and your study partner are accountants. 3. Read the contract below and answer the succeed requirement. Accounting for Franchise Operations - Franchisor 10. Water Co. enters into the following three franchise agreements on July 1, 20x1: Franchisee ● . ● ● A B C Totals Probability of collection Reasonably assured Uncertain Significantly uncertain Cash down payment 20,000 20,000 20,000 60,000 Present value of a. 74,879 b. 76,982 note 60,747 48,037 33,801 142,585 Additional information: The down payments are non-refundable and are due at contract inception. The discount rate on all the notes is 12% and the first installment payments are due on July 1, 20x2. 407 Direct costs incurred 32,000 25,000 21,520 78,520 At contract inception, Water expects to provide Franchisee B a price concession and concludes that it is probable that Franchisee B will pay half of the note. The adjusted present value of the note is P24,018. The discount rate is 12%. The nature of the licenses is to provide the customers the 'right to use' Water's intellectual property as it exists at grant date. Water transfers the licenses to the customers on July 1, 20x1. c. 78,312 d. 80,921 How much is the total profit recognized from the three contracts in 20x1? PROBLEM 5: CLASSROOM ACTIVITY INSTRUCTIONS: 1. Find a study partner. 2. Imagine that you and your study partner are accountants. 3. Read the contract below and answer the succeed requirement.

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Answer option a Explanation Following are the calculation of total profit recognized for the thr... View the full answer