Reference no: EM133042551

Questions -

Q1. 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

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 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.?

Q4. Last year, 3K, Inc. started work on a $10,600,000 construction contract which was completed this year. It has consistently used the percentage of completion method of recognizing income. Accounting data provided last year were as follows: Debit: Progress Billings $4,300,000; Credits: Cost incurred $3,450,000 Collections $3,900,000 Estimated cost to complete $3,630,000. How much of this contract was recognized last year?