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- ABC sells franchise arrangement throughout La Trinidad and Itogon. Under a franchise agreement, ABC receives 1,000,000 in exchange for satisfying the following separate performance obligations: franchisees have a ten-year right to operate as an ABC retail establishment once it started its operation; franchisees receive an ABC building and necessary equipment; franchisees receive initial training and certification as an ABC retail. The 1,000,000 is payable with a down payment of P500,000 on August 1, 2021 with the balance will be payable in five equal annual payments with an interest of 10% starting January 1, 2022. The stand-alone selling price of the initial training and certification is P100,000 and P400,000 for the building and equipment. ABC estimates that the stand-alone selling price of the ten-year right to operate as a franchise using the residual approach. ABC received P500,000 on August 1, 2021 from DDD, which represent the collection from the training, building and…ABC sells franchise arrangement throughout La Trinidad and Itogon. Under a franchise agreement, ABC receives 1,000,000 in exchange for satisfying the following separate performance obligations: franchisees have a ten year right to operate as an ABC retail establishment once it started its operation; franchisees receive an ABC building and necessary equipment; franchisees receive initial training and certification as an ABC retail. The 1,000,000 is payable with a down payment of P500,000 on August 1, 2021 with the balance will be payable in five equal annual payments with an interest of 10% starting January 1, 2022. The stand-alone selling price of the initial training and certification is P100,000 and P400,000 for the building and equipment. ABC estimates that the stand-alone selling price of the ten-year right to operate as a franchise using the residual approach. ABC received P500,000 on August 1, 2021 from DDD, which represent the collection from the training, building and…ABC Company sells franchise arrangements throughout Luzon and Visayas. Under a franchise agreement, ABC receives P600,000 in exchange for satisfying the following separate performance obligations: • Franchisees have a five-year right to operate as an ABC's retail establishment in an exclusive sales territory • Franchisees receive initial training and certification, and • Franchisees receive an ABC building and necessary equipment. The stand-alone selling price of the initial training and certification is P15,000, and P450,000 for the building and equipment. ABC estimates the stand-alone selling price of the five-year right to operate as an ABC establishment using the residual approach. ABC received P75,000 on July 1, 2022, from a customer and accepted a note receivable for the rest of the franchise price. ABC will construct and equip the customer's building and train and certify the customer by September 1, and the customer's five-year right to operate as an ABC establishment will…
- ABC Company sells franchise arrangements throughout Luzon and Visayas. Under a franchise agreement, ABC receives P600,000 in exchange for satisfying the following separate performance obligations: Franchisees have a five-year right to operate as an ABC's retail establishment in an exclusive sales territory Franchisees receive initial training and certification, and . Franchisees receive an ABC building and necessary equipment. ● The stand-alone selling price of the initial training and certification is P15,000, and P450,000 for the building and equipment. ABC estimates the stand-alone selling price of the five-year right to operate as an ABC establishment using the residual approach. ABC received P75,000 on July 1, 2022, from a customer and accepted a note receivable for the rest of the franchise price. ABC will construct and equip the customer's building and train and certify the customer by September 1, and the customer's five-year right to operate as an ABC establishment will…Watts Inc. charges an initial franchise fee of P690,000, with P150,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is P409,400. The franchisee has the option to purchase P90,000 of equipment for P70,000. Watts has substantially provided all initial services required and collectability of the payments is reasonably assured. The amount of revenue from franchise fees is?Kami, Inc. charges an initial franchise fee of P500,000 for the right to operate to operate as a franchise of Kami. Of this amount, P100,000 is payable when the agreement was signed and the balance is payable in a noninterest bearing note in five annual payments of P80,000 each. In return for the initial franchise fee, the franchisor will help locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide the bookkeeping services. The credit rating of the franchisee indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five annual receipts of P80,000 each discounted at 8% is P319,416.80. The discount represents the interest revenue to be accrued by the franchisor over the payment period. If the probability of refunding the initial franchise fee is extremely low, the amount of future services to be provided to the franchisee is minimal, collectability of the note is reasonably assured and substantial…
- Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monitor receives $600,000 in exchange for satisfying the following separate performance obligations:(1) franchisees have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory, (2) franchisees receive initial training and certification as a Monitor Mechanic, and (3) franchisees receivea Monitor Muffler building and necessary equipment. The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling priceof the five-year right to operate as a Monitor Muffler establishment using the residual approach.Monitor received $75,000 on July 1, 2018, from Perkins and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins’s building and train and certify Perkins by September 1,…Collins, Inc., entered into a 10-year franchise agreement with an individual. For an initial franchise fee of$40,000, Collins agrees to assist in design and construction of the franchise location and in all other necessarystart-up activities. Also, in exchange for advertising and promotional services, the franchisee agrees to pay continuing franchise fees equal to 5% of revenue generated by the franchise. When should Collins recognize revenuefor the initial and continuing franchise fees?Brilliant Company sold a franchise to sell its products for P5,000,000 on January 1, 2021. The initial fee is payable P500,000 upon signing of the contract and the balance in 5 equal installments every December 31, evidenced by a 12% promissory note. The agreement provides that the franchisor will assist in the location of site, supervision of the building construction, project study or market survey, assistance in the acquisition of facilities, training and management of personnel, quality control, advertising and promotion. It was also agreed that the franchisee will pay a royalty fee equal to 5% of its average sales every calendar year. The franchise outlet was opened on May 1, 2021 and the average monthly sales of the franchisee is P100,000. The franchisor has incurred P1,500,000 related to the services required by the contract. 1. How much is the Initial Franchise Fee Revenue to be recognized in 2021? 2. How much is the Continuing Franchise Fee Revenue to be recognized in 2021? 3.…
- On October 1, 2018, the Submarine Sandwich Company entered into a franchise agreement with an individual.In exchange for an initial franchise fee of $300,000, Submarine will provide initial services to the franchisee toinclude assistance in design and construction of the building, help in training employees, and help in obtainingfinancing. Ten percent of the initial franchise fee is payable on October 1, 2018, with the remaining $270,000payable in nine equal annual installments beginning on October 1, 2019. These installments will include interestat an appropriate rate. The franchise opened for business on January 15, 2019.Required:Assume that the initial services to be performed by Submarine Sandwich subsequent to October 1, 2018, are substantial and that collectibility of the installment receivable is reasonably certain. Substantial performance of theinitial services is deemed to have occurred when the franchise opened. Prepare the necessary journal entries forthe following dates…SAPPHIRE CO. charges new franchisees an initial fee of P5,000,000. Of this amount, P2,000,000 is payable in cash when the agreement is signed, and the remainder is to be paid in three equal annual installments which are evidenced by an interest-bearing promissory note. In consideration therefore, SAPPHIRE CO. will assist in locating the business site, conduct a market study to estimate earnings potential, supervise construction of a building, and provide initial training to employees. On December 3, 2021, Sapphire Co. entered into a franchising agreement with EMERALD, INC. by the end of the year, SAPPHIRE CO. has completed about 25% of the initial services at a cost of P300,000 and it has ascertained that collection of the notes is reasonably assured. For 2021, SAPPHIRE CO. should recognized franchise revenue of:A. 5,000,000 C. 1,700,000B. 2,000,000On Jan. 1, 2020, ABC Corporation entered into a franchise agreement with a P570,000 cash payment as initial franchise fee. The fee covers the initial services with the following stand alone prices: Location Identification - P 150,000, Manager Training - P 50,000, Market Study - P 200,000, Employee Training P 200,000. ABC charges a mark-up on cost of 25% when it computes the stand-alone prices of all its services. On Jan 31, 2020, ABC has completed the location identification and market study. How much is the gross profit from the franchise to be reported in the income statement for January 2020 ?