How much expense related to the franchise

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Question - Dollibee Corporation entered into a franchise agreement with McJonald Company on January 1, 2018 to sell McJonald products for 10 years. The initial franchise fee, which is P20,000,000, was satisfied by Dollibee by paying P4,000,000 as down payment, and by issuing a 5-year P16,000,000, 8%, note. The agreement states that McJonald shall provide the necessary initial services, and has already substantially performed all required initial services. The agreement further states that Dollibee shall pay McJonald 5% of its annual sales every December 31 as a continuing franchise fee. The 2018 sales of Dollibee total to P10,000,000; and the 2019 sales total to P14,300,000. How much expense related to the franchise (excluding the interest expense on the note payable) shall be recognized in 2019?

Reference no: EM132937515

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