Prepare the year indicated entries on the books

Assignment Help Cost Accounting

Reference no: EM132788477

On January 1, 2005, Lorna Corporation signed an agreement to operate as a franchise of Diamond Foods for an initial franchise of P3,600,000, and for a definite period of 20 years. On the same date, Lorna paid P400,000 and agreed to pay the balance in 5 equal annual payments beginning December 31, 2005. The agreement is evidenced by a 14% interest-bearing note.

During 2005, the initial services required of the franchise agreement are substantially performed. The cost of such services amounted to P900,000. The contract also stipulated that the franchise will pay a periodic fee of 10% of gross sales. Assume that on year 2005, gross sales of Lorna amounted to P2.5 million.

Required:

Problem a: Prepare the year 2005 indicated entries on the books of the:

1. Franchise
2. Franchisor, assuming collection of Note is
2.a. Reasonably assured
2.b. Not Reasonably assured

Reference no: EM132788477

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