Reference no: EM132891157

On December 31, 20x1, Mr. Eugene H. Krabs Co. enters into a contract with Sheldon J. Plankton Co. to transfer a license for a fixed fee of P100,000 payable as follows:

• 20% upon signing of contract.
• 80% in 4 equal annual installments starting December 31, 20x2. The appropriate discount rate is 12%.

Problem 1: Using the information in the immediately following item, how much total revenue will Krabs recognize in 20x2?

a. 20,187

b. 27,477

c. 80,747

d. 0

Problem 2: The license grants Plankton rights over Mr. Krabs' trademark (Krusty Krab) and related proprietary processes for a period of ten years. The franchise agreement requires Mr. Krabs' to perform initial services to assist Plankton in opening the new restaurant. These include provision of written guidelines on the standard layout, design, decoration and color scheme of the restaurant and provision of training. No separate fees are charged for these services. Moreover, the franchise agreement requires Mr. Krabs to continually undertake activities, such as research and development and marketing campaigns, to support the franchise name. Mr. Krabs substantially performs all the initial services on December 31, 20x1. Plankton commences business operations on January 3, 20x2. How much total revenue will Krabs recognize in 20x2?

a. 15,365

b. 27,477

c. 60,747

d. 0