Franchises; residual method
• LO5–6, LO5–7
Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monitor receives $600,000 in exchange for satisfying the following separate performance obligations: (1) franchisees have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory, (2) franchisees receive initial training and certification as a Monitor Mechanic, and (3) franchisees receive a Monitor Muffler building and necessary equipment. The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling price of the five-year right to operate as a Monitor Muffler establishment using the residual approach. Monitor received $75,000 on July 1, 2018, from Perkins and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins’s building and train and certify Perkins by September 1, and Perkins’s five-year right to operate as a Monitor Muffler establishment will commence on September 1 as well.
Required:
1. What amount would Monitor calculate as the stand-alone selling price of the five-year right to operate as a Monitor Muffler retail establishment?
2. What
3. How much revenue would Monitor recognize in the year ended December 31, 2018, with respect to its franchise arrangement with Perkins? (Ignore any interest on the note receivable.)
Want to see the full answer?
Check out a sample textbook solutionChapter 5 Solutions
Intermediate Accounting
- LO6-4,LO6-5 E 6-5 Performance obligations LO6–2, On March 1, 2024, Gold Examiner receives $147,000 from a local bank and promises to deliver 100 units of certified l-oz. gold bars on a future date. The contract states that ownership passes to the bank when Gold Examiner delivers the products to Brink's, a third-party carrier. In addition, Gold Examiner has agreed to provide a replacement shipment at no additional cost if the product is lost in transit. The stand-alone price of a gold bar is $1,440 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $60 per unit. Brink's picked up the gold bars from Gold Examiner on March 30, and delivery to the bank occurred on April 1. Required: 1. How many performance obligations are in this contract? 2. Prepare the journal entry Gold Examiner would record on March 1. 3. Prepare the journal entry Gold Examiner would record on March 30. 4. Prepare the journal entry Gold Examiner would record on April…arrow_forwardExercise 6-20 (Algo) Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] On June 15, 2024, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $410 million. The expected completion date is April 1, 2026, just in time for the 2026 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): Costs incurred during the year Estimated costs to complete as of December 2024 $ 50 200 2025 $ 150 2026 $ 45 50 31 Required: 1. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming Sanderson recognizes revenue over time according to percentage of completion. 2. Compute the revenue and gross profit that Sanderson will report in its 2024, 2025, and 2026 income statements related to this contract, assuming this project does not qualify…arrow_forwardProblems 18–25 assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes for each problem.Mikkeli OY acquired a brand name with an indefinite life in 2015 for 40,000 markkas. At December 31, 2017, the brand name could be sold for 35,000 markkas, with zero costs to sell. Expected cash flows from the continued use of the brand are 42,000 markkas, and the present value of this amount is 34,000 markkas.a. Determine the appropriate accounting for this brand name for the year ending December 31, 2017, under (1) IFRS and (2) U.S. GAAP.b. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017, conversion worksheet to convert IFRS balances to U.S. GAAP.arrow_forward
- E 15-4 Sales-type lease; lessor; balance sheet and income statement effects • LO15-2 On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Inc. at a cost of $3 million. Required: 1. What amount related to the lease would IC report in its balance sheet at December 31, 2021 (ignore taxes)? 2. What amount related to the lease would IC report in its income statement for the year ended December 31, 2021 (ignore taxes)?arrow_forwardQuestion 18 UniTel Co provides a bundled-service package to B. Mann for $4,200 upfront. The service package includes upfront advice, 'on-call' advice, and database access for a 1-year period. If each service was sold separately to B. Mann the fees would be: Up-front advice: $900 On-call advice: $1,800 Database access: $2,700 Using the relative fair value approach, what is the amount of revenue recognised in relation to the on-call advice is (rounded to the nearest whole dollar): $700 $1,400 $1,800 $2,100arrow_forwardHW #10 (continued) JK7 [7 pts] For the satellite contract described in the in-class exercise, the build plan and spending profile is shown below. - The contract calls for the following payment profile from the customer • Payments = 80% of company expenditures in each year, with an additional milestone payment of $100M in the year that each satellite is completed • Create a spreadsheet to model the full 10-year program and use it to (a) annual cash flow (b) IRR for the full 7-satellite, 10-year program 1 2 3 4 5 6 7 8 9 10 S1 10% 30% 40% 20% S2 30% 50% 20% S3 30% 50% 20% S4 30% 50% 20% S5 30% 50% 20% S6 30% 50% 20% S7 30% 50% 20%arrow_forward
- Pls answer number 15 with solutions An entity is the defendant in a patent infringement lawsuit. The entity’s lawyers believe there is a 30% chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believe that there is a 20% chance that the entity will be required to pay damages of ₱800,000 (the amount sought by the claimant) and an 80% chance that the entity will be required to pay damages of ₱400,000 (the amount that was recently awarded by the same judge in a similar case). Other outcomes are unlikely. The court is expected to rule in late December 20x2. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 10% per year. How much is the provision for lawsuit at…arrow_forwardModule4_Lease.pdf x 16 / 19 100% Problem 14-19 (IFRS) Liza Company is a car dealer. On January 1, 2020, the entity entered into a finance lease with a customer under which the customer would pay P200,000 on January 1 each year for 5 years, commencing in 2020. The cost of the car is P600,000 and the cash selling price was P750,000. The entity paid legal fees of P20,000 to a law firm in connection with the arrangement of the lease. What amount of gross profit on sale should be recognized for the year ended December 31, 2020? a. 150,000 b. 130,000 20,000 d. c.arrow_forwardExercise 6-3 (Algo) Allocating transaction price [LO6-4] Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $2,000, sells the remote separately for $125, and offers the installation service separately for $375. The entire package sells for $2,400. Required: How much revenue would be allocated to the TV, the remote, and the installation service? Note: Do not round intermediate calculations. Item Description TV Remote Installation Total revenue Allocated Revenuearrow_forward
- Exercise 6-3 (Algo) Allocating transaction price [LO6-4] Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,575, sells the remote separately for $210, and offers the installation service separately for $315. The entire package sells for $2,000. Required: How much revenue would be allocated to the TV, the remote, and the installation service? (Do not round intermediate calculations.) Item Description TV Remote Installation Total revenue $ Allocated Revenue 0arrow_forwardProblem 12 On January 1, GEN enters into a contract with LORD for the sale of a high-end security scanner for P630,000. The contract includes a put option the obliges GEN to repurchase the scanner machine from LORD for P567,000 on or before December 31. The market value is expected to be P495,000 on December 31. LORD pays GEN P630,000 on January 1. The transaction should be accounted for as a: A. Sale C. No sale/lease B. Lease D. Cannot be determined Problem 13 Noreen INC a truck dealer, sells a truck on January 1, 2019, to Mendoza for P3,000,000. Noreen INC agrees to repurchase the truck on December 31, 2020 for P3,630,000. 1. Assuming a 10% is imputed in the agreement, how much is the liability of Tom Co on January 1, 2019? A. 1,500,000 C. 3,000,000 B. 1,815,000 D. 3,630,000 2. Using the information above, what is the interest expense for 2019? A. None C. 330,000 B. 300,000 D. 630,000 3. How much should NOREEN INC record interest and retirement of its liability to MENDOZA INC…arrow_forwardEnterprise Solutions Inc. licenses its productivity software to Blackmon Company for 100,000, payable at contract inception. Enterprise agrees to provide semiannual software upgrades over the 5-year length of the contract to enable Blackmon to benefit from any technological advancement. Enterprise concludes that the software license is not distinct from the promised upgrades. What journal entries are necessary for Enterprise to account for this transaction?arrow_forward
- Financial & Managerial AccountingAccountingISBN:9781337119207Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning