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    Acctg34 Franchise Pret. Remaining Items Akey

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    Donna Mae Singson
    The franchisee paid a down payment of $150,000 and signed a non-interest bearing note for the $700,000 balance of the initial $850,000 franchise fee. The present value of the note receivable, discounted at the franchisee's borrowing rate of 12%, is $532,000. The franchisor incurred $235,000 in initial direct costs and $64,000 in initial indirect costs. In the first month of operations, the franchisee generated $950,000 in sales and owed a 5% continuing franchise fee of $47,500. The franchisor's net income for the period is $59,550 after recognizing revenue and expenses.

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    Acctg34 Franchise Pret. Remaining Items Akey

    Uploaded by

    Donna Mae Singson
    164 views6 pages
    The franchisee paid a down payment of $150,000 and signed a non-interest bearing note for the $700,000 balance of the initial $850,000 franchise fee. The present value of the note receivable, discounted at the franchisee's borrowing rate of 12%, is $532,000. The franchisor incurred $235,000 in initial direct costs and $64,000 in initial indirect costs. In the first month of operations, the franchisee generated $950,000 in sales and owed a 5% continuing franchise fee of $47,500. The franchisor's net income for the period is $59,550 after recognizing revenue and expenses.

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    answer key

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    ACCTG34-FRANCHISE-PRET.-REMAINING-ITEMS-AKEY

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    The franchisee paid a down payment of $150,000 and signed a non-interest bearing note for the $700,000 balance of the initial $850,000 franchise fee. The present value of the note receivable, discounted at the franchisee's borrowing rate of 12%, is $532,000. The franchisor incurred $235,000 in initial direct costs and $64,000 in initial indirect costs. In the first month of operations, the franchisee generated $950,000 in sales and owed a 5% continuing franchise fee of $47,500. The franchisor's net income for the period is $59,550 after recognizing revenue and expenses.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    164 views6 pages

    Acctg34 Franchise Pret. Remaining Items Akey

    Uploaded by

    Donna Mae Singson
    The franchisee paid a down payment of $150,000 and signed a non-interest bearing note for the $700,000 balance of the initial $850,000 franchise fee. The present value of the note receivable, discounted at the franchisee's borrowing rate of 12%, is $532,000. The franchisor incurred $235,000 in initial direct costs and $64,000 in initial indirect costs. In the first month of operations, the franchisee generated $950,000 in sales and owed a 5% continuing franchise fee of $47,500. The franchisor's net income for the period is $59,550 after recognizing revenue and expenses.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

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    Midterm T2 Pretest Akey


    Smith Inc. is a provider of computer and software. The customers can purchase any
    product or service from the entity in a bundled package or separately. On January 2,
    20x1, Tronx Company acquired computers, software installation and training services for
    a total amount of P870, 000. The standalone selling prices of the computer, software
    installation and training services are P543, 750; 362, 500 and P181, 250, respectively.
    Req.1 How much is the transaction price allocated to computers.
    Req. 2 the journal entry to record the transaction will include a:
    Computer 543,750 543,750/1,087,500 435,000
    Installation 362,500 362,500/1,087,500 290,000
    Trainings 181,250 181,250/1,087,500 145,000
    1,087,500 870,000

    Cash 870,000
    Unearned sales revenue 435,000
    Unearned Service revenue-installation 290,000
    Unearned Service Revenue- training 145,000
    On January 1, 20x1, LOMI Ko charges initial fee P8, 000, 000 for franchise, with P1, 600, 000 amount
    paid when the agreement was signed by both parties and the balance in four equal annual payments.
    The present value of the four equal annual payments is P5, 070, 000, which is discounted at 10%. The
    franchise has the right to purchase P300, 000 of supplies and equipment for P250, 000. An additional
    part of the initial fee is for advertising to be provided by LOMI Ko during the next five years. The
    amount of advertising is P5, 000 a month. The collectability is reasonable assured and LOMI Ko has
    performed all the initial services provided in the contract.
    Req. 1: how much is the revenue from franchise?
    REQ. 2 : The journal entry to record the transaction would include?

    Cash 1,600,000
    PV of notes receivable 5,070,000 Notes Receivable 6,400,000
    Downpayment 1,600,000 Unearned interest income 1,330,000
    Adjusted Franchise fee 6,670,000 Franchise revenue 6,320,000
    Bargain Purchase (300-250) (50,000) Unearned franchise revenue 350,000
    Advertising (5K X 60m) (300,000)
    Franchise Revenue 6,320,000
    PV of notes 5,070,000
    Face Value-note (6,400,000)
    Unearned interest 1,330,000
    Ivonne enters into a contract for 2 years with Irvin to transfer a license. The agreement signed on January 2, 2025
    called for a P30,000 down payment plus a 10% interest bearing note of P20,000 payable in two annual payments
    starting December 31, 2025. The license provides that Irvin has the right to use the secret formula to produce healthy
    juice. The licenses does not explicitly require Ivonne to undertake activities that will significantly affect the secret
    formula to which Irvin has rights. The collectability of the note is reasonably assured.
    Req. 1:What is the total revenue to be recognized on December 31, 2025?
    Req. 2:Assume that the license provides Irvin the right to access the secret formula to produce healthy juice. Irvin is
    bound by the terms of the contract to follow with the policies on the use of the secret formula by Ivonne but is given
    the right to any subsequent modifications to the secret formula.
    What is the total revenue to be recognized on December 31, 2025?

    Cash downpayment 30,000


    Notes receivable 20,000
    Interest income (20K X10%) 2,000
    Total Revenue 52,000

    Cash downpayment 30,000


    Interest income (20K X 10%) 2,000
    Total Revenue 27,000
    On June 1, 2017 PEACH Inc. entered into a franchise agreement with PINK Company to sell their products.
    The agreement provides for an initial franchise fee of P1,500,000 which is payable as follows: P500,000 cash
    to be paid upon signing the contract , and the balance in four equal annual installments every December
    1,starting in 2017. PEACH 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 PVOA of 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. PINK incurred direct cost of P465,282 and indirect costs of P83,700 . The franchisee
    started business operations on July 1 , 2017 and was able to generate sales of P620,000 for 2017. The first
    installment payment was made in due date. Assuming that the collectability of the note is reasonably
    assured, how much is the net income of the franchisor for the year ended December 1, 2017 ?
    Initial Franchise fee 1,500,000
    Down Payment (500,000) Down payment 500,000
    Notes Receivable 1,000,000 Installment collection (250,000 – 39,623) 210,377
    Divide : No of collection 4 Collection 710,377
    Installment collection 250,000 X GPR (827,168/1,292,450) 64%
    X PV factor 3.1698 Realized gross profit 454,641
    PV of note receivable 792,450 Continuing franchise revenue (620K X 5%) 31,000
    Down payment 500,000 Interest income (792,450 X 10% X 6/12) 39,623
    Adjusted franchise fee 1,292,450 Expenses (83,700)
    Franchise Costs (Initial direct)(465,2828) Net income 441,564
    Deferred gross profit 827,168
    AB Company , franchisor entered into franchise agreement with BA Inc. , franchisee on July 1 , 2012 . The initial franchise fee agreed upon is
    P850,000 of which 150,000 is payable upon signing and the balance to be covered by a non-interest bearing note payable in four equal
    annual installments. It was agreed that the downpayment is not refundable, notwithstanding lack of substantial performance of servuces by
    the franchisor. Probability of collection is unlikely.
    The following expenses were incurred:
    Initial Services
    Direct cost P235,000
    Indirect cost 64,000
    Continuing services
    Direct cost 23,900
    Indirect cost 8,000
    The management of BA has estimated that they can borrow loan at the rate of 12%. The franchisee commenced its operations on July 31,
    2012 . A continuing franchise fee equal to 5% of its monthly gross sales . BA reported gross sales of P950,000 for the month.
    What AB prepares its financial statements on August 31 , 2012 , How much is the net income to be reported? Round off PV factors to 2
    decimal places (Eg. 3.01)
    Initial Franchise fee 850,000 Down payment 150,000
    Down Payment (150,000) Installment collection (250,000 – 39,623) -______
    Notes Receivable 700,000 Collection 150,000
    Divide : No of collection 4
    X GPR (827,168/1,292,450) 64%
    Installment collection 175,000
    X PV factor 3.04 Realized gross profit 98,310
    PV of note receivable 532,000 Continuing franchise revenue (620K X 5%) 47,500
    Down payment 150,000 Interest income (532,000 X 12% X 6/12) 10,640
    Adjusted franchise fee 682,000 Expenses (64K +23,900 + 9K) (96,900)
    Franchise Costs (Initial direct) (235,000) Net income 59,550
    Deferred gross profit 447,000

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