On Jan. 1, 20x1, Hurt Co. entered into a franchise agreement with Hero Co. The franchise contract gives Hero Co. the right to use Hurt’s trademark and proprietary processes for a period of 4 years. The franchise requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and 5% monthly royalty based on sales. Aside from the granting of the license, the franchise agreement also requires Hurt Co. to undertake pre-opening activities to setup the contract and post-commencement activities, such as research and development and marketing campaigns, to support the intellectual property. Although the activities do not result in the direct transfer of a good or service to Hero Co. as the activities occur, it is expected that Hero Co. will benefit from them. All the necessary preparations were completed and Hero Co. started business operations on January 31, 20x1. Hero had total sales of ₱9,000,000 in 20x1. How much revenue would Hurt Co. recognize in 20x1?
On Jan. 1, 20x1, Hurt Co. entered into a franchise agreement with Hero Co. The franchise contract gives Hero Co. the right to use Hurt’s trademark and proprietary processes for a period of 4 years. The franchise requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and 5% monthly royalty based on sales. Aside from the granting of the license, the franchise agreement also requires Hurt Co. to undertake pre-opening activities to setup the contract and post-commencement activities, such as research and development and marketing campaigns, to support the intellectual property. Although the activities do not result in the direct transfer of a good or service to Hero Co. as the activities occur, it is expected that Hero Co. will benefit from them. All the necessary preparations were completed and Hero Co. started business operations on January 31, 20x1. Hero had total sales of ₱9,000,000 in 20x1. How much revenue would Hurt Co. recognize in 20x1?
Chapter14: Property Transactions: Capital Gains And Losses, § 1231, And Recapture Provisions
Section: Chapter Questions
Problem 7DQ
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On Jan. 1, 20x1, Hurt Co. entered into a franchise agreement with Hero Co. The franchise contract gives Hero Co. the right to use Hurt’s trademark and proprietary processes for a period of 4 years. The franchise requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and 5% monthly royalty based on sales. Aside from the granting of the license, the franchise agreement also requires Hurt Co. to undertake pre-opening activities to setup the contract and post-commencement activities, such as research and development and marketing campaigns, to support the intellectual property. Although the activities do not result in the direct transfer of a good or service to Hero Co. as the activities occur, it is expected that Hero Co. will benefit from them. All the necessary preparations were completed and Hero Co. started business operations on January 31, 20x1. Hero had total sales of ₱9,000,000 in 20x1. How much revenue would Hurt Co. recognize in 20x1?
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