Solution on Franchise

Problem 1
1. A
May 1, 2019 (date of signing)
Cash 28,000
Notes receivable (70,000-28,000) 42,000
Discount on notes receivable (unearned interest income)
[P42,000-(2.4885xP14,000)] 7,184
Unearned franchise revenue 62,816

2. C
July 1, 2019 (date of opening -point in time)
Unearned franchise revenue 62,816
Franchise revenue 62,816

3. A
May 1, 2019 (date of signing)
Cash 28,000
Notes receivable 42,000
Discount on notes 7,184
Contract liability (unearned franchise revenue) 62,816

4. B
December 31, 2019 (date of signing – over time) (62,816/3)x 8/12 = 13,959
Unearned franchise revenue 13,959
Franchise revenue 13,959

5. A
May 1, 2019 (date of signing)
Cash 28,000
Notes receivable 42,000
Discount on notes receivable 7,184
Unearned service revenue (training)* 2,400
Unearned franchise revenue (28k+42k-7.184k-2.4k) 60,416
*This represents the payment for training services after franchise opening, hindi na to part ng pre opening
activities hehehe

6. B
July 1, 2019 (date of opening, - point in time and overtime)
Unearned franchise revenue 60,416
Unearned service revenue (2,400/2 months) 1,200
Franchise revenue (point in time) 60,416
Service revenue (over time) 1,200

7. B
September 1, 2019
Unearned Service revenue (traning) 1,200
Service revenue 1,200
8. If right to access (let’s say the contract period is 5 years)
Down payment 3,500,000
PV of non-interest-bearing note 6,033,600
Total franchise revenue to be recognize 9,533,600
Divide by 5 years /5 __
Annual franchise revenue to be recognize 1,906,720
Add: interest income 905,040 (6,033,600 x 15%)
Continuing franchise fee 54,000 (1,800,000 x 3%)
Less: direct cost (858,024) (4,290,120/5)
Indirect cost (175,000)
Net income 1,832,736

C If right to use (which is the assumption in this problem)

Down payment 3,500,000
PV of non-interest-bearing note 6,033,600
Total franchise revenue to be recognize 9,533,600
Add: interest income 905,040 (6,033,600 x 15%)
Continuing franchise fee 54,000 (1,800,000 x 3%)
Less: direct cost (4,290,120)
Indirect cost (175,000)
Net income 6,027,520