Reference no: EM132597706
On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provides that the franchisee shall pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee.
On January 1, 2020, the franchisee paid downpayment of P200,000 and issued a 3-year non- interest bearing note for the balance payable in three equal annual installments starting December 31, 2020. The note has present value of P240,183 with effective interest rate of 12%.
On June 30, 2020, the entity completed the performance obligation of the franchise at a cost of 352,146. Aside from that the entity incurred indirect cost of 22,009.
The franchisee started operation on July 1, 2020 and reported sales revenue amounting to 50,000 for the year ended December 31, 202. The franchisee paid the first installment on its due date.
Question 1: If the collection of the note receivable is reasonably assured, what is the net income to be reported by the entity for the year ended December 31, 2020