UNIVERSITY OF THE EAST-CALOOCAN

College of Business Administration

SY 2020 - 2021
BSA 3101-Accounting for Special Transactions

NAME CLASS ID:

SECTION DATE

Module 6: Franchise

Edgardo S. Santos Muffler Enterprise sells franchise arrangements throughout the Philippines
and United States. Under a franchise agreement, Edgardo S. Santos Muffler receives
P720,000 in exchange for satisfying the following separate performance obligations:
 franchisees have a five-year right to operate as Edgardo S. Santos Muffler retail
establishment in an exclusive sales territory,
 franchisees receive initial training and certification as Edgardo S. Santos Muffler
Mechanic, and 
 franchisees receive Edgardo S. Santos Muffler building and necessary equipment. 

The stand-alone selling price of the initial training and certification is P18,000, and P540,000
for the building and equipment. Edgardo S. Santos Muffler estimates the stand-alone selling
price of the five-year right to operate as Edgardo S. Santos Muffler establishment using the
residual approach. Edgardo S. Santos Muffler received P90,000 on July 1, 20x6, from Butch
Antonio and accepted a note receivable for the rest of the franchise price. Edgardo S. Santos
Muffler will construct and equip Butch Antonio’s building and train and certify Butch Antonio by
September 1, and Butch Antonio’s five-year right to operate as Edgardo S. Santos Muffler
establishment will commence on September 1 as well.

Required (10 points each):

1. What amount would Edgardo S. Santos Muffler calculate as the stand-alone selling
price of the five-year right to operate as a Monochrome Muffler retail establishment?

2. What journal entry would Edgardo S. Santos Muffler record on July 1, 20x6, to reflect
the sale of a franchise to Butch Antonio?

3. How much revenue would Edgardo S. Santos Muffler recognize in the year ended
December 31, 20x6, with respect to its franchise arrangement with Butch Antonio?
(Ignore any interest on the note receivable.)