Deposit on franchise or Unearned Franchise FeesP80,000 + (P40,000 x 3.17)206,800
Aug. 15, �8:Deferred franchise costs25,000Cash25,000Nov. 10, �8:Deferred franchise costs10,000Cash10,000Dec. 31, �8:Discount on notes receivable6,340Interest revenue (40,000 x 3.17)6,340 Jan. 10, �9:Deferred franchise costs35,000Cash35,000 Jan. 15, �9:Deposit on franchise206,800Franchise revenue206,800Franchise costs70,000Deferred franchise costs70,000 July 1, �9Cash40,000Notes receivable40,000Dec. 31, �9Discount on notes receivable11,314Interest income11,3142. Jade Enterprises, a franchisor, charges new franchisees a �franchise fee� of P500,000. Of thisamount, P200,000 is payable at the time the agreement is signed and the balance in P100,000non- interest bearing notes due every year thereafter. Jade agrees to assists in locating a suitablebusiness site, conduct a market study, supervise construction of facilities, and provide initialtraining for employees.Required:Assuming an implicit interest rate of 12%, prepare first year entries relating to each of thefollowing assumptions:1.Down payment is refundable, but no services have been rendered so far; collection of notesis reasonably assured.2.Down payment is nonrefundable, and substantial services, costing P250,000, have beenperformed; collections of notes is certain.3.Down payment is nonrefundable, and substantial services, costing P300,000 have beenperformed; collection of notes is doubtful.4.Same as #3, except cost recovery method will be used.Case 1:Deposit MethodCash200,000Note receivable300,000Discount on notes receivable59,800Deposit on franchise440,200Case 2:Full Accrual MethodCash200,000Notes receivable300,000Discount on notes receivable59,800Deposit on franchise440,200Deferred franchise costs250,000Cash250,000Cost of franchise fee revenue250,000Deposit on franchise440,200Deferred franchise costs250,000Franchise fee revenue440,200