Problem I

1. Jollibee has substantially performed all material services, the refund period has expired, and the

collectibility of the note is reasonably assured. Jollibee recognizes revenue as follows:

Cash……….. 240,000

Notes receivable……………. 600,000

Franchise revenue…………………….. 840,000

2. The refund period has expired and the collectibility of the note is reasonably assured, but

Jollibee has not substantially performed all material services. Jollibee does not recognize

revenue, but instead recognizes a liability as follows:

Cash……….. 240,000

Notes receivable……………. 600,000

Unearned franchise revenue…………………….. 840,000

Franchisor will recognize the unearned franchise fees as revenue when it has performed all
material services, the adjusting entry to record the revenue then would be:

Unearned franchise revenue……………………... 840,000

Franchise revenue….……. 840,000

3. Jollibee has substantially performed all services and the collectibility of the note is reasonably

assured, but the refund period has not expired. Jollibee does not recognize revenue, but

instead recognizes a liability as follows:

Cash……….. 240,000

Notes receivable……………. 600,000

Unearned franchise revenue…………………….. 840,000

The franchisor will recognize the unearned franchise fees as revenue when the refund period

expires, the adjusting entry to record the revenue then would be:

Unearned franchise revenue……………………... 840,000

Franchise revenue….……………………………….. 840,000

4. Jollibee has substantially performed all services and the refund period has expired, but the

collectibility of the note is not reasonably assured. Jollibee recognizes revenue by the installment

or cost recovery method. If we assume that Jollibee uses the installment method, it recognizes

revenue of P240,000 as follows:

Cash……….. 240,000

Notes receivable……………. 600,000

Franchise revenue…………………….. 240,000

Unearned franchise revenue…………… 600,000

The franchisor is using the installment method, it recognizes the unearned franchise fees as

revenue in the amount of P120,000 each year as it receives cash assuming there is no cost of