1. CYA, Inc. franchisor, entered into a franchise agreement with Ligaya, franchisee, on July 1, 2012. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon signing and the balance payable in four equal annual installments. It was agreed that the down payment is not refundable, notwithstanding lack of substantial performance of services by the franchisor. When CYA prepares its financial statements on July 31, 2012, the unearned franchise fees to be reported is:

Select one:

P100,000

P-0-

P1,100,000

P1,000,000

2. On January 2, BARBIE awarded its first franchise of RTW products to KITTY. The franchise agreement required P200,000 franchise fee payable P50,000 upon signing of the franchise and the balance in three annual instalments starting the end of the current year. The present value using 12% as the discount rate of the three instalments would be approximately P82,160. The fees once paid are not refundable. The franchise may be cancelled subject to the provisions of the agreement. Should there be an unpaid franchise fee attributed to the balance of the main fee, the same need not be paid. Further, the franchisor is entitled to 3% fee on the gross sale payable monthly within the first ten days of the following month. The first year of operation yielded gross sales of P1,000,000. BPI guaranteed the note issued by KITTY.
BARBIE earned franchise fees in the first year of KITTY's operation is:

Select one:

P130,000

P100,000

P30,000

P162,160

3. On January 1, 2020, MR. JOVEN entered into a franchise agreement with ONG to market their products. The agreement provides for an initial fee of P12,500,000 payable as follows: P3,500,000 to be paid upon signing of the contract and the balance in five equal annual payments every end of the year starting December 31, 2020. Mr. JOVEN signs a non-interest-bearing note 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 P4,290,120 and incurred indirect cost of P175,000. The franchisee commenced business operations on November 30, 2020. The gross sales reported to the franchiser were P1,800,000 for December 2020. The first installment payment was made in due date.
Assume the collectability of the note is not reasonably assured, how much is the net income for the year ended, December 31, 2020?

Select one:

P3,072,268

P3,126,268

P3,201,268

P2,417,268

Answer rating: 100% (QA)

1 Correct option P1000000 Explanation Initial franchise fee P1100000 Less Down payment 100... View the full answer