JLC Inc., franchisor, entered into a franchise agreement with BEA, franchisee, on July 1, 2020. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon signing and the balance payable in four equal annual installments. It was agreed that the down payment is not refundable, notwithstanding lack of substantial performance of services by the franchisor. When JLC prepares its financial statements on July 31, 2020, the unearned franchise fees to be reported is

JLC Inc., franchisor, entered into a franchise agreement with BEA, franchisee, on July 1, 2020. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon signing and the balance payable in four equal annual installments. It was agreed that the down payment is not refundable, notwithstanding lack of substantial performance of services by the franchisor. When JLC prepares its financial statements on July 31, 2020, the unearned franchise fees to be reported is

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 7C: On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial...

See similar textbooks

Similar questions

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.
A Franchisor entered into a franchise agreement with B, franchisee, on March 31, 2021. The total franchise fee is P500,000, of which P100,000 is payable upon signing and the balance in four equal annual installments. The down payment is refundable in the event the franchisor fails to render services and none thus far had been rendered. When B's prepares its financial statements on March 31, 2021, the franchise fee revenue to be reported is?
On March 01, 2021, WX entered into a franchise contract with YZ. The franchise agreement required the franchisee, YZ, to pay a nonrefundable upfront fee in the amount of P1,440,000 and on-going payment of royalties equivalent to 5% of the sales of the franchisee. YZ paid the non-refundable upfront fee on March 01, 2021. In relation to the nonrefundable upfront fee, the franchise agreement required WX to render the following performance obligations: To construct the franchisee's stall with stand-alone selling price of P300,000. To supply cooking equipment and cash registers. Price of competitors for the similar items (cooking equipment and cash registers) is valued at P240,000 while the forecast of the expected cost of AshLloyd for the performance obligation is P200,000 plus an appropriate margin above cost of 25%. To deliver 10,000 units of raw materials to YZ with stand-alone selling price of P460,000. To allow YZ to use the entity's tradename for a period of 10 years starting…
Dominos Pizza, franchisor, entered into a franchise agreement with Kabayan Co., franchisee, on July 1, 2021. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon signing and the balance payable in four equal annual installments. It was agreed that the down payment is not refundable, notwithstanding lack of satisfaction of any performance obligation by the franchisor. When Dominos prepares its financial statements on July 31, 2020, the unearned franchise fees to be reported is how much?
On December 31, 2018, SG signed an agreement authorizing Asher Company to operate as a franchisee for an initial franchise fee of P750,000. Of this amount, P250,000 nonrefundable down payment was paid upon signing of the agreement and the balance is payable in four equal annual payment beginning December 31, 2018. The nonrefundable down payment represents a fair measure of the services already performed by SG however, substantial future services are required of SG. Asher’s credit rating is such that collection of the note is reasonably certain and that the money can be borrowed at 12%. On December 31, 2018, earned franchise fees should be reported as: (Round off present value factor to 2 decimal places.)
Diva Who Inc., franchisor, entered into a franchise agreement with Mawie Company on January 1, 2018. The initial franchise fee agreed upon is P950,000, of which, P150,000 is payable upon signing and the balance to be covered by a non-interest bearing note payable in four equal annual installment to be paid starting December 31, 2018. It was agreed that the down payment is not refundable and royalties equal to 5% of its average sales every calendar year must be paid to Diva Who. The following expenses were incurred:Initial services:Direct cost-P 331,200Indirect cost-41,400Continuing services:Direct cost-P66,240Indirect cost-16,560The management of Mawie estimated that they can borrow at the rate of 7%; probability of collection is unlikely. The franchisee commenced its operations on June 30,2018. Mawie reported monthly average sales of P80,000 since the start of its operations.The total revenue to be recognized by Diva Who Inc. for the year ended December 31, 2018 is? how much is the…
On March 01, 2021, WX entered into a franchise contract with YZ. The franchise agreement required the franchisee, YZ, to pay a nonrefundable upfront fee in the amount of P1,440,000 and on-going payment of royalties equivalent to 5% of the sales of the franchisee. YZ paid the non-refundable upfront fee on March 01, 2021. In relation to the nonrefundable upfront fee, the franchise agreement required WX to render the following performance obligations: To construct the franchisee's stall with stand-alone selling price of P300,000. To supply cooking equipment and cash registers. Price of competitors for the similar items (cooking equipment and cash registers) is valued at P240,000 while the forecast of the expected cost of AshLloyd for the performance obligation is P200,000 plus an appropriate margin above cost of 25%. To deliver 10,000 units of raw materials to YZ with stand-alone selling price of P460,000. To allow YZ to use the entity's tradename for a period of 10 years starting on the…
On July 1, 2019, HOSPITAL CORP. signed an agreement to operate as a franchise of PLAYLIST CO. for an initial franchise fee of P1,200,000. On the same date, Hospital paid P400,000 and agreed to pay the balance in four equal payments of P200,000 beginning July 1, 2020. The down payment is not refundable, and no future services are required of the franchisor. Hospital can borrow at 14% for a loan of this type. If the franchise has definite life of 20 years, what is the carrying value of the franchise to be reported on the December 31, 2021 balance sheet? (Round off the PV factor to 4 decimal places and the final answer to the nearest peso)
On January 1, 2019, Tulip signed an agreement to operate as a franchise of Flower Service Inc. for an initial franchise fee of P850,000. Of this amount, P250,000 was paid when the agreement was signed and the balance was payable in four annual payments of P150,000 each, beginning January 1, 2020. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value of January 1, 2019 of the four annual payments discounted at 14% (the implicit rate for a loan of this type) is P437,000. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Tulip's revenue from the franchise for 2019 was P900,000. Tulip estimates the useful life of the franchise to be ten years. Tulip incurred P780,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 2019. Legal fees and other costs associated with the registration of the…
On December 31, 2016, Crispy Cream, Inc. authorized J. Guerrero to operate as a franchisee for an initial franchisee fee of P1,500,000. Of this amount, P600,000 was received upon signing the agreement and the balance, represented by a note, is due in three annual payments, appropriately discounted is P720,000. According to the agreement, the non-refundable down payment represents a fair measure of the services already performed by Crispy Cream however, substantial future services are required of Crispy Cream. Collectability of the note isreasonably certain. On December 31, 2016, what entry should Crispy Cream record for the receipt of the initial franchise fee? a.Cash 600,000Notes Receivable 900,000Unearned interest income 180,000Franchise Revenue 600,000Unearned Franchise fees 720,000 b. Cash 600,000Notes Receivable…
On January 1, 2022, Black Mamba Company signed an agreement to operate as a franchise of Doug company for an initial franchise fee of P30,000,000. Of this amount, P10,000,000 was paid when the agreement was signed and the balance is payable in equal annual payment of P5,000,000 beginning December 31, 2022. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Black Mamba’s credit rating indicates that it can borrow money at 12% for loan of this type. How much is the cost of franchise? A. 30,000,000 B. 25,186,000 C. 21,541,500 D. 19,065,000
On July 1, 2011, AAA, a franchisor, entered into a franchise agreement with EEE, a franchisee. The total franchise fees agreed upon is P2,100,000 of which P100,000 is payable upon signing and the balance payable in four annual installments. It was agreed that the down payment is non-refundable, notwithstanding lack of substantial performance of services by franchisor. The deferred revenue from franchise fee to be reported in the July 31, 2011 financial statements of AAA would be: