Max Co. restaurant sold a fast-food restaurant franchise to Irish for a 5-year term. The sale agreement, signed on January 2, 20x1 called for a P100,000 down payment plus two P50,000 annual payments representing the value of initial franchise services rendered by MIKE restaurant. In addition, the agreement required the franchisee to pay 8% royalty based on its gross revenues to the franchisor. The restaurant opened early in 2020 and its sales for the year amounted to P750,000. The prevailing rate for similar note was 12% (PV factor was 1.6901).

The franchise contract requires Max Co. to undertake activities that would significantly affect the affect the franchise license. Although those activities do not result in the transfer of good or service to Irish as those activities occur, it is expected that Irish will benefit from those activities.

How much is the total revenue for 20x1?

a. 184,505

b. 254,646

c. 107,042

d. 96,901

Which of the following statement is incorrect?

a. A credit to Deferred Franchise Revenue for P184,505 on January 2.

b. A credit to Franchise Revenue account for P60,000 for royalty fee earned.

c. A credit to Unearned Interest Income account on January 2 for P15,495

d. A debit to Notes Receivable account for P50,000 on January 2

Answer rating: 100% (QA)

1 107042 2 A debit to Notes Receivable account for P50000 on January 2 Initial franchise fee Down pa... View the full answer