Answered: The franchisor charges an initial…

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 2RE: Yankee Corp. agrees to provide Albany Company 24 months of coaching services. The contract sets the...

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The franchisor charges an initial franchise fee of P110,000 broken down as follows:

Right to trade name, market, know-how	P 50,000
Training services	20,000
Equipment (Cost of P10,800)	40,000
Total initial franchise fee	P110,000

Upon signing of the agreement, a payment of P70,000 is due. Thereafter, two annual payments of P30,000 are required. The credit rating of the franchisee is such that it would have to pay interest of 8% to borrow money. The franchise agreement is signed on August 1, 2019, and the franchise commences operation on November 1, 2019. Assuming that no future services are required by the franchisor once the franchise begins operations, determine the net income reported on December 31, 2019.

a. 99,200

b.125,180

c. 114,380

d. 112,600

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