Reference no: EM133092845

Question 1 - JANE creates a franchise for the sale of a particular product, JANE incurs P600,000 initial direct costs for each franchise granted. At December 31, 20x6, JANE granted the following people franchises that have open accounts with JANE.

	ANNA	BETTY	CHERRY	DANA
Cash paid (down payment)	200,000	200,000	200,000	200,000
Note unpaid (face 1,000,000)	700,000	400,000	910,000	550,000
Services completed	25%	10%	95%	100%
Probability of collection	Likely	Unlikely	Unlikey	Likely
Continuing franchise fee	1% of NI	1% of NI	1% of NI	1% of NI
Period of refund	1/31/2017	2/28/2017	12/30/2016	12/30/2016

Required - What is the total revenue to be recognized by JANE on December 31, 20x6?

Question 2 - ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows:

Construct a road- completing construction within a year;

Maintain and operate the road for four years.

Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3.

The operator collects toll fees of P200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount rate is 10% At contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. makes the following estimates:

	Year	Contract Cost	Stand Alone Selling Price
Construction Service	1	P200,000	Forecast cost + 25%
Operation Services	2-5	15,000	N/A
Road Resurface	3	10,000	N/A

At the start of year 1, ABC Co. obtains a 4-year, 10%, P200,000 bank loan to help finance the arrangement. The principal and interest on the loan matures in lump sum.

Required - Compute the net income for year 3.