Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN: 9781285595047
Author: Weil
Publisher: Cengage
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Manong Nilaga, a renowned franchisor under McJabi Group of Companies, sells franchise arrangements to individual businessmen. Under a franchise agreement, Manong Nilaga receives P10,000,000 in exchange for satisfying the following separate performance obligations:
franchisees have a ten-year right to operate as a Manong Nilaga restaurant.
franchisor submits a feasibility study for the strategic location of the business
franchisees receive initial training and certification, and
franchisees receive necessary specialized equipment.
The stand-alone selling price are P500,000 for the initial training and certification, and P1,500,000 for the specialized equipment. The feasibility study usually costs P200,000 for Manong Nilaga. The franchisor expects a normal profit of 25% on most of its services. The franchisor also estimates the stand-alone selling price of the ten-year right to operate as a Manong Nilaga restaurant using the residual approach.
Manong Nilaga received P2,000,000 on…
On January 1, 20x1, an entity grants a franchisee the right to operate a restaurant in a specific market using the entity’s brand name, concept and menu for a period of ten years. The entity has granted others similar rights to operate this restaurant concept in other markets. The entity commonly conducts national advertising campaigns, promoting the brand name, and restaurant concept generally. The franchisee will also purchase kitchen equipment from the entity. The entity will receive ₱950,000 upfront (₱50,000 for the kitchen equipment and ₱900,000 for the franchise right) plus a royalty, paid quarterly, based on 4% of the franchisee’s sales over the life of the contract. The ₱50,000 amount reflects the stand-alone selling price of the kitchen equipment. The entity delivers the kitchen equipment to the customer on February 1, 20x1. The customer commences business operations on April 1, 20x1 and reports total sales of ₱5,000,000 for the year. How much total revenue should the entity…
Frozen Delight, Inc. charges an initial franchise fee of $75,000 for the right to operate as a franchisee of Frozen Delight. Of this amount, $25,000 is collected immediately. The remainder is collected in four equal annual installments of $12,500 each. These installments have a present value of $41,402. As part of the total franchise fee, Frozen Delight also provides training (with a fair value of $2,000) to help franchisees get the store ready to open. The franchise agreement is signed on April 1, 2020, training is completed, and the store opens on July 1, 2020. Prepare the journal entries required by Frozen Delight on April 1 and July 1, 2020.
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- Frozen Delight, Inc. charges an initial franchise fee of $75,000 for the right to operate as a franchisee of Frozen Delight. Of this amount, $25,000 is collected immediately. The remainder is collected in four equal annual installments of $12,500 each. These installments have a present value of $41,402. As part of the total franchise fee, Frozen Delight also provides training (with a fair value of $2,000) to help franchisees get the store ready to open. The franchise agreement is signed on April 1, 2017, training is completed, and the store opens on July 1, 2017. Prepare the journal entries required by Frozen Delight in 2017.arrow_forwardChipotle Inc. grants franchisees the right to operate a franchise using the company’s name, menu, and operational procedures. On June 1, a franchisee enters into a 5-year contract with Chipotle and pays a $250,000 initial franchise fee. The franchisee also pays $60,000 for equipment for the restaurant with a delivery date scheduled in 10 days. Per the contract, the franchisee will also pay a royalty equal to 3% of the franchisee sales over the contract life. Chipotle expects monthly sales at the franchise to be $100,000 per month based on extensive historical data. What amount of revenue will Chipotle Inc. record for the year? Group of answer choices: A.) $50,667 B.) $71,000 C.) $106,000 D.) $110,167 E.) $131,000arrow_forwardTopChop sells hairstyling franchises. TopChop receives $50,000 from a new franchisee for providing initial training, equipment, and furnishings that have a stand-alone selling price of $50,000. TopChop also receives $30,000 per year for use of the TopChop name and for ongoing consulting services (starting on the date the franchise is purchased). Carlos became a TopChop franchisee on July 1, 2021, and on August 1, 2021, had completed training and was open for business. How much revenue in 2021 will TopChop recognize for its arrangement with Carlos?arrow_forward
- The Krispy Donuts franchise has agreements with 100 franchisees across the United States to operate bakeries. On January 1, 2020, Krispy Donuts grants a franchisee the right to operate a bakery in Minneapolis, Minnesota using the Krispy Donut’s brand name, recipe, and other business concepts for a price of $800,000. On January 1, 2020, the franchisee made a down payment to the franchisor of $80,000 and paid the remaining $720,000 upfront fee on March 31, 2020. In exchange for the $800,000 payment, the franchisee received franchise rights, which include benefits of a national advertising campaign over the ten-year period (starting on the contract date) to promote the brand name of Krispy Donuts. The payment also includes the purchase of kitchen equipment from the franchisor (fair value of $96,000), and upfront training and assistance in setting up the franchise (fair value of $32,000). The training and assistance will be performed before the opening of the bakery. Equipment was…arrow_forwardABC 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…arrow_forwardABC 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…arrow_forward
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