Tam's Pizza, Inc. charges an initial franchise fee of P50,000 for the right to operate as a franchisee of Tam's Pizza for five years. Of this amount, P10,000 is payable when the agreement was signed and the balance in five annual payments of P8,000 each. Tam's is expected to provide continuing services to the franchise during the contract period. The credit rating of the franchisee indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five receipts of P8,000 each discounted at 8% is P31,942. On February 1, 2020, Tam's signed a franchise agreement with Tim's. The agreement further provides that Tam's is entitled to a 3% sales-based royalty. On December 31, 2020, Tim's reported sales of P628,000.

Tam's Pizza, Inc. charges an initial franchise fee of P50,000 for the right to operate as a franchisee of Tam's Pizza for five years. Of this amount, P10,000 is payable when the agreement was signed and the balance in five annual payments of P8,000 each. Tam's is expected to provide continuing services to the franchise during the contract period. The credit rating of the franchisee indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five receipts of P8,000 each discounted at 8% is P31,942. On February 1, 2020, Tam's signed a franchise agreement with Tim's. The agreement further provides that Tam's is entitled to a 3% sales-based royalty. On December 31, 2020, Tim's reported sales of P628,000.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter12: Current Liabilities

Section: Chapter Questions

Problem 7EA: Homeland Plus specializes in home goods and accessories. In order for the company to expand its...

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On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
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