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
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BETTY
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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
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Likely
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Unlikely
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Unlikey
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Likely
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|
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:
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Year
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Contract Cost
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Stand Alone Selling Price
|
|
Construction Service
|
1
|
P200,000
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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.