Reference no: EM133179705

Question - On January 2, 2021, Mr. A entered into a franchise agreement with CFK Corp. to sell CFK products. The agreement provides for 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 Dec. 31. Mr. A 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 franchisee fees equal to 5% of its monthly gross sales.

On July 31, 2021, the franchisor completed the initial services required in the contract at a cost of P2,000,000. The franchisee commenced business operations on November 2,2021. The gross sales reported by the franchisee to the franchisor are: November sales, P580,000, and December sales, P720,000.

Required - Prepare all entries for 2021 in the books of the franchisor under the following assumptions:

a. The collection of the note is reasonably assured.

b. The collection of the note is not reasonably assured.