Reference no: EM133035257
Questions -
Q1. Anticipated loss must be recognized as:
when all costs are recognized in the period it is determined in the future
on a percentage basis during the contract period
Q2. What cost can be attributed to contract activity?
general administrative costs for which reimbursement is not specified in the contract
research and development for which reimbursement is not specified in the contract.
costs of hiring plant and equipment
depreciation of idle plants not used
Q3. If the initial fee is collectible over an extended period and there is a significant uncertainty of its collection in full, the fee will be:
recognized as revenue when collected
recognized as revenue in full
deferred of recognition as revenue
not recognized as revenue at all.
Q4. If a franchisor acts as an agent for the franchisee, he will:
defer recognition of profit until completion of the transaction
not recognize revenue
recognize profit
record the transaction in his books
Q5. 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 nonrefundable, 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.?
Q6. 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?