Answered: revenue

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 17E

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Question

On January 1, 2022, Heeseung Ramen Shop granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P550,000. The franchisee paid the upfront fee immediately on January 1, 2022. A continuing franchise fee of 10% based on annual sales is to be paid by the franchisee. It is the obligation of Heeseung Ramen Shop to construct a franchise stall, provide the franchisee a right to access the trade name for a period of five years and to deliver 10,000 kg. of ramen noodles to the franchisee. On October 1, 2022, Heeseung already finished construction of the stall. During 2022, 2,000 kilos of ramen noodles were delivered. The franchisee reported sales of P2,000,000 during 2022. The stand-alone prices are determined as follows: · Tradename – P400,000 · Ramen noodles – P150,000 · Stall – Not directly observable Based on the current market conditions, it was estimated that a customer in the market is willing to pay P100,000 for the construction of a stall. Determine the following: 1. Revenue from initial franchise fee 2. Total revenue for 2022

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