Reference no: EM133031437
Questions -
Q1. If the Construction in Progress account is greater than the Contract Billings, what should be the treatment for the excess?
loss
income
current liability
current asset
Q2. If the franchisor supplies equipment and inventories without a reasonable profit, part of the initial franchise fee, sufficient to cover the estimated costs in excess of that price is:
deferred and recognized when finally sold to the franchisee
not recognized.
deferred and recognized over the period the goods are likely to be sold to the franchisee
recognized immediately
Q3. On May 1, 2010, JFC Inc., a franchisor, entered into a franchise agreement with Goldilocks, a franchisee. The total franchise fees agreed upon is $11,900,000 of which $5,000,000 is payable upon signing and the balance payable in three annual payments. It was agreed that the down-payment is non-refundable, not withstanding the lack of substantial performance of services by franchisor. How much of the deferred revenue should be reported in the May 1, 2010 financial statements of JFC Inc.?
Q4. Wendy's granted a franchise to Mac where Mac will have to pay franchise fee of $5,000,000 payable in 4 equal annual installments with the first payment starting on the date of signing the contract. The franchisee was to pay 5% of gross sales of the preceding month. Should the operations of the outlet prove to be unprofitable, the franchise may be cancelled with whatever obligation owing Wendy's, in connection with the $5,000,000 franchise fee waived. If the first year of operations generated a gross sales of $1,340,000, how much franchise fee did Wendy's earn?
Q5. During 2009, Main Corporation, Inc. started work on a $5,200,000 fixed-price construction contract to be completed in 2 years. The accounting records disclosed the following data for the year ended December 31, 2009: Cost incurred $2,650,000 Estimated cost to complete $2,720,000 Progress billings $2,500,000 Collections $2,000,000. How much of net income or loss should have been recognized in 2009?