Reference no: EM133175214
Questions -
Q1. On March 1, 2011, Baliwag Lechon, Inc. a franchisor, entered into franchise agreement with Mr. Go. The initial franchise fee is P500,000 of which P100,000 is payable in cash upon signing of the franchise agreement and the balance evidenced by a 12% promissory note. As of December 31, 2011 the franchisor fails to render substantial services and none thus far had been rendered to the franchisee. When Baliwag Lechon, Inc. prepares its financial statements on December 31, 2011, how much revenue from franchise fee is to be reported?
Q2. On July 1, 2011, Ms. Chan signed an agreement to operate as franchisee of Andok's Lechon Manok, Inc. for an initial franchise fee of P500,000. Of this amount, P100,000 was paid upon signing of the franchise agreement and the balance evidenced by a 12% promissory note is payable in two annual payments of P200,000 each beginning December 31, 2011. Ms. Chan commenced operations of the franchise on November 2, 2011. The first installment was collected on due date. Assuming the collectibility of the note is reasonably assured, what is the revenue from franchise fee to be reported by Andok's in its December 31, 2011 statement of comprehensive income?
Q3. On January 2, 2011, Pizza Inc. signed an agreement authorizing Ms. Tria to operate as a franchisee for an initial franchise fee of P5,000,000. Of this amount, P2,000,000 was received upon signing of the agreement and the balance evidenced by a 24% promissory note is due in three annual installments of P1,000,000 each beginning December 31, 2011. Ms. Tria started franchise operations on September 1, 2011 after Pizza Inc. rendered initial services required at total costs of P500,000. The first installment was collected on due date. The collectibility of the note is not reasonably assured. Using the installment method, what is the realized gross profit to be recognized on December 31, 2011?
Q4. On July 1, 2011, Heart Company signed an agreement to operate as a franchisee of Dryer's Ice Cream Company for an initial franchise fee of P10,000,000. On the same date, Heart Company paid P6,000,000 and agreed to pay the balance evidence by a non-interest bearing note in four annual payments of P1,000,000, beginning July 1, 2012. The collectibility of the note is not reasonably assured. Heart Company can borrow at 14% for a loan of this type. The present value of an annuity of 1 at 14% for 4 periods is 2.91. Dryer's Company rendered initial services so that Heart Company can start their operations. The total costs of such services is P2,000,000. The franchisor also incurred indirect costs of P50,000. The franchise agreement further requires the franchisee to pay continuing franchise fee at 5% of its monthly gross sales. The total sales reported by Heart Company up to December 31, 2011 is P5,000,000. Assuming the use of installment method of revenue recognition, what is the net income of Dryer's Ice Cream Company for the year ended December 31, 2011?
Q5. On January 2, 2011, Mr. Azur entered into a franchise agreement with Jolibi, Inc. to sell Jolibi products. The agreement provides of an initial franchise fee of P20,000,000, payable as follows: P12,000,000 cash to be paid upon signing of the contract, and the balance in four equal annual payments every December 31. Mr. Azur signs 10% interest-bearing note for the balance. The agreement further provides that the franchisor will assist the franchisee in locating the business site, designing and supervision in the construction of the building, and training of management and employees. The agreement also provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales.
On July 31, 2011, the franchisor completed the initial services required in the contract at a costs of P2,000,000. The franchisee commenced business operations on November 2, 2011. The gross sales reported by franchisee to the franchisor are: November sales, P580,000; and December sales, P720,000.
Required - Prepare all entries for 2011 in the books of the franchisor under the following assumptions:
1. The collection of the note is reasonably assured.
2. The collection of the note is not reasonably assured.