Reference no: EM132722176

On January 1, 20x1, Sunbathe Co. enters into a contract with a customer to transfer a license.

1. The initial franchise fee is P100,000 payable as follows: 20% cash down payment upon signing of the contract and the balance is payable in 4 equal annual installments starting December 31, 20x1. The appropriate discount rate is 12%.
2. The contract states that the initial franchise fee consists of P30,000 consideration for the equipment that Sunbathe Co. will transfer to the customer and the P70,000 balance for the franchise rights.
3. Sunbathe Co, regularly sells the equipment and the license separately. The stand-alone selling prices are P40,000 for the equipment and P38,000 for the license.
4. The license provides the customer the "right to use" Sunbathe's intellectual property as it exists at the point in time at which the license is granted.
5. The equipment is transferred to the customer on January 15, 20x1, while the license is transferred to the customer on February 1, 20x1.

Problem 1. What is the journal entry on Jan. 1, 20x1? (Sunbathe Co. uses 'Unearned interest income' account.)

Problem 2. What is the journal entry on Jan. 15, 20x1? (Sunbathe Co. recognizes interest income only at year-end.)

Problem 3. What is the journal entry on Feb. 1, 20x1?