474 1. Upon signing of the franchise contract, the franchisee is required to pay the: a. Continuing franchise fee. b. Professional fee. c. Initial franchise fee. d. Brokers fee. 2. The initial franchise fee received by the franchisor should first be: a. Recognize as revenue b. Deferred c. Recognize as asset d. Recognize as other income 3, What determines substantial performance for purposes of recognizing the initial franchise fee? ._ When the franchisee actually commence operation. . When the franchisee pays the initial franchise fee in full. a. b. c. When the franchisee pays a cash down payment. d. When the franchisee signs the franchise contract. 4, What conditions are to be met to determine franchisor’s services are substantially performed? The franchisor is not obligated in any way to refund cash already received or forgive unpaid debt. b. The initial services required of the franchisor by contract or otherwise have been substantially performed. c. Noother material conditions or obligations exist. d. Alloftheabove. 5. What costs of initial services are to be deferred by the franchisor? a. Indirect costs. b. Direct costs. ¢. Period costs. d. Conversion costs.Franchise Aecounsiny 6. 10. 475 Continuing franchise fee ; ar snd ofeach ‘susually collect ¢ franchisee at the end of eac! month. These fees 'y collected from the far Ate treated by the franchisor as: a. Revenue b. Deferred revenue c. Other revenue d. None of the above, How is the recognition of the initial tianchise fee aftected ifcontinuing franchise fee is less than continuing costs? a. A portion of the initi franchise, SIS recognize. c. Anexpense is Tecognize. d. None of the above. al fee is deferred and amortized over the term of the When the initial franchise fee isnot paid in full and the collectibility of the note for the balance is not Feasonably assured, the method to be used by franchisor to Fecognize revenue from the initial fee is: Installment method Gross profit method ¢. Accrual basis d. Cost method oe When the initial franchise fee is not paid in fulland the collectibility of the note for the balance is reasonably assured, the method to be used by the franchisor to recognize revenue from the initial franchise fee is: a. Installment method b. Gross profit method c. Accrual method d. Cash basis. Pizza, Inc. grants a franchise to Mr. Manuel for an initial franchise fee of P 1,000,000, Tueaaree een provides that Pizza, Inc. has the option within one year to acquire franchisee’s business and it seems certain that Pizza, Inc. will exercise this option. On Pizza, Inc. books, how should the initial franchise fee be recognized? Deferred revenue to be amortize Realized revenue 7 i - Deed revenue and as reduction from Pizza’s investment when the option is exercise. aege476 11-3: Chapter 11 On March 1, 2013, Baliwag’s Lechon, Inc. a franchisor, entered into franchise agreement with Mr, Gordobe. The initial franchise fee is P500,000 of which P100,000 is payable in cash upon signing of the franchise agreement and the balance evidence by a 12% promissory note. As of December 31, 2013 the franchisor fails to render substantial services and none thus far had been rendered to the franchisee. When Baliwag’s Lechon, Inc. prepares its financial statements on December 31, 2013, the revenue from franchise fee to be reported is: PS500,000 PO P100,000 P400,000 ROSA On August 1, 2013, KFC Company sells a franchise that requires an initial franchise fee of P5,000,000. On September 15, 2013 the contract was signed and the franchisee paid the initial franchise fee in full. On November 2, the franchisee commenced operations after substantial services have rendered by the franchisor at a cost of P50,000. What is the net income from franchise fee of the franchisor in its December 31, Statement of Comprehensive Income? a. P5,000,000 b OP 0 c. 4,950,000 d P 50,000 On July 1, 2013, Ms. Tiam signed an agreement to operate as franchisee of Andok’s Lechon Manok, Inc. for an initial franchise fee of P500,000. Of this amount, P100,000 was paid upon signing of the franchise agreement and the balance evidence by a 12% promissory note is payable in two annual payments of P200,000 each beginning December 31, 2013. Ms. Tiam commenced operations of the franchise on November 2, 2013. The first installment was collected on due date. Assuming the collectibility of the note is reasonably assured, what is the revenue from franchise fee to be reported by Andok’s in its December 31, 2013 statement of comprehensive income? P500,000 PO a. b. c. P100,000 d. P400,000Prauchise Accounting $$ tt 11-4: 11-5: 11-6: oo 477 — Using the dat — assured, Using ihe, deoaASsuming the Collectibility of t he note is not reasonably the initial franchise fee wate nee Me FeCoEnition, what is the revenue from 4. PS00,000 +. P300,000 © PO a. 0 be recognized by Andok’s on December 31, 20137 P100,000 January 2, 20 x 3, Pizza Inc. signed an agreement authorizing Ms. Janice to PPO a franc ice for an initial franchise fee of P5,000,000. Of this amount, bya he ‘S received upon signing of the agreement and the balance evidence poe 2 Promissory note is due in three annual installments of P1,000,000 a ginning December 31, 2013. Ms. Janice started franchise operations oo s eptember 1, 2013 after Pizza Inc. rendered initial services required at total Costs of P500,000. The first installment was collected on due date. The collectibility of the note is notreasonable assured. Using the installment method, what is the realized gross profit to be recognized on December 31 , 20137 4. P2,700,000 5. P4,500,000 c. P3,000,000 d. P5,000,000 On July 1, 2013, Mr. Roxas signed an agreement to operate as a franchisee of HotDog Inc. for an initial franchise fee of P1,200,000. On the same date, Mr. Roxas paid P400,000 and agree to pay the balance in four annual payments of P200,000 beginning July 1, 2014. Mr. Roxas can borrow at 14% fora loan of this type. Present and future value factors are as follows: Present value of 1 at 14% for 4 periods 059 Future amount of | at 14% for 4 periods 16 Present value of an ordinary annuity of 1 at 291 14% for 4 periods On July 1, 2013, when the initial franchise fee is received, what is the unearned interest income recorded by HotDog, Inc? a. P200,000 b. P218,000 c. PO d. P380,000478 1-7: 11-8: 11-9; Chapter 11 Using the data in 11-6, What is the deferred revenue from franchise fee to be recorded on July 1, 2013 by HotDog, Inc.? a. P800,000 6. P582,000 c. P400,000 P982,000 Re On January 4, 2013, Selecta Ice Cream, Inc. signed an agreement authorizing Ms. Jenny to operate as franchisee for an initial franchise fee of P500,000 received when the agreement was signed. Ms. Jenny commenced operations on July 1, 2013, at which date all of the initial services required of Selecta Ice Cream, Ine. had been performed at a cost of P10,000. The franchise agreement further provides that Ms. Jenny must pay monthly to Selecta Ice Cream, Inc., a continuing franchise fee equal to 5% of its monthly gross sales. Ms. Jenny reported from July 1 to December 31, 2013 gross sales of P400,000. On December 31, 2013, what is the net income from franchise fees to be reported by Selecta Ice Cream, Inc.? a. P500,000 6. P490,000 c. P520,000 d. PS510,000 On July 1,2013, Hot Company signed an agreement to operate as a Franchisee of Dryer’s Ice Cream Company for an initial franchise fee of P10,000,000. On the same date, Hot Company paid P6,000,000 and agreed to pay the balance evidence bya non-interest bearing note in four annual payments of P1,000,000, beginning July 1, 2014. The collectibility of the note is not reasonably assured. Hot Company can borrow at 14% for a loan of this type. The present value of an annuity of | at 14% for 4 periods is P2.91. Dreyer’s Company rendered initial services so that Hot Company can start their operations. The total costs of such services is P2,000,000. The franchisor also incurred indirect costs of P50,000. The franchise agreement further requires the franchisee to pay continuing franchise fee at 5% of its monthly gross sales. The total sales by Hot Company up to December 31, 2013 is PS 000,000. Assuming the use of the installment method of revenue Tecognition, what is the net income of Dreyer’s Ice Cream Company for the year ended December 31, 2013? a. P4,630,000 b. P5,056,700 c. P4,880,000 d. P4,833,700Franchise Accounting 479 11-10: W-11: On December 31, 2013, Arce Ice Cream, Inc. authorized Mr. Lee to operate as a Franchise for an initial franchise fee of P3,000,000. Of this amount. P1,200,000 was received upon signing of the contract, and the balance bya noninterest bearing note, is due in three annual payments of P600,000, beginning December 31, 2014. The present value on December 31, 2013 of the three annual payments appropriately discounted is P1,263,900. The cullectibility of note is not reasonably assured. On December 31, 2013, Arce Ice Cream, should record unearned interest income and deferred revenue from franchise fee of: Unearned Deferred Revenue Interest Income From Franchise Fee a. P536,100 3,000,000 b. —P536,100 P2,463,900 c. P 63,900 P3,000,000 d._ P 63,900 P2,463,000 On January 2, 2013, Ms. Rufina got the franchise of Mario’s, a known steak house of upscale patronage. The franchise agreement provided a P 1,000,000 initial franchise fee, payable as follows: P200,000 when the contract is signed and the balance in four annual installments starting December 31, 2013. The current interest rate is 20%. The present value of an annuity of | for 4 periods is P2.5887. Any services to be rendered in the future is very minimal which will notaffect the recognition of revenue from the initial franchise fee. The agreement further provides a continuing franchise fee of 5% on gross sales of the franchise, payable monthly within the first ten days of the following month. The collectibility of the note is reasonably assured. The franchisee commenced operation on July 1, 2013 and reported gross sales of P2,000,000 from July to December 31, 2013. What is the revenue from franchise fees to be reported by Mario’s for the year ended December 31, 2013? P1,100,000 P 817,740 P1,000,000 P 300,000 RO PR480 11-12: 1-13: On June 30, 2013, Mr. Tuason entered into a franchise age ment with TM Company to sell their products, The agreement provides for an initial franchise fee of P1,250,000, payable as follows: P350,000 cash to be paid upon signing, of the contract, and the balance in five equal annual payments every D 31, starting D cember mber 31,2013. Mr. Tuason signs 15% interest bearing note eement further provides that the franchisee must pay a continuing, franchise fee equal to 5% of its month gross sales. On October 30, the franchisor completed the initial services required in the contract al a costs of P787,500 and incurred indirect costs of P42,900. The franchisee commenced business operations on November 2, 2013. The gross sales reported to the franchisor are; November sales, P121,000 and December sales, P 147,500. ‘The first installment payment was made in due date. Assuming the collectibility of the note is not reasonably assured, in the statement of comprehensive income for the year ended December 31 » 2013, how much is the net income of TM Company? a. P234,125 6. P301,625 © P220,700 d. P200,825 On March 1, 2013, Mr. Solis signed a franchise a; reement wit! 3 charged an initial franchise fee of P255,000 from Mr Sol Wiiieereee ‘was signed, Mr. Solis paid P95,000 and si; igned a non-interest bearing note for the balance. The note is to be paid in four annual installment each beginning March 1, 2014. Mr. Solis normal borrowing rate is 12%. The down Paymentis. nonrefundable. Collection of the note is reasonably assured and the franchisor has performed substantially all of the services Tequired. Percent and future value factors areas follows: > Present value of PI at 12% for 4 periods 0.6355 Future value of P1 at 12% for 4 periods : Present value of an ordinary annuity of Pl at 12% for 4 periods sia How much revenue from the initial franchise fee will be reported I Ine, its December 31, 2013 statement of comprehensive income? aa a. P255,000 b. P121,496 ©. P216,496 d. P196,680Franchise Accounting 481 11-14: On January 2, 2013, Gino Services, Inc. signed an agreement authorizing Triple 8 Company to operate as a franchisee over a 20-year period for an initial franchise fee of P50,000 received when the agreement was signed. Triple $ commenced Operations on July 1, 2013, at which date all of the initial services required of Gino had been performed. The agreement also provides that Triple 8 must pay annually to Ginoa continuing franchise fee equal to 5% of their gross sales. Triple 8 reported gross sales of P400,000 for 2013. For the year ended December 31, 2013, how much should Gino Services, Inc. record as revenue from franchise fees with respect to the Triple 8 franchise? a. P70,000 b. P50,000 rom P45,000 d. P22,500 11-15: JG Company granted a franchise to Ms. Jenny. Jenny was to pay P100,000 initial franchise fee payable in five equal annual installments starting with the payment upon signing of the agreement. The franchisee was to pay monthly 1% of gross sales of the preceding month. Should the operation of the outlet prove to be unprofitable, the franchise may be cancelled with whatever obligation owing JG, in connection with the P100,000 franchise fee, waived. The first year of operations generated a gross sales of P500,000. For the first year, JG Company’ eamed franchise fee of: RP SR P160,000 P 25,000 P 80,000 100,000Chapter 11 482 11-16: On December 31, 2013, Crispy Cream, Inc. authorized J. Guerrero to operate as a franchisee for an initial franchise fee of P1,500,000. Of this amount, 600,000 was received upon signing the agreement and the balance, represented byanote, is due in three annual payments, appropriately discounted is P720,000. According to the agreement, the nonrefundable down payment represents a fair measure of the services already performed by Crispy Cream; however, substantial future services are required of Crispy Cream. Collectibility of the note is reasonable certain. On December 31, 2013, Crispy Cream would make the following entry to record the receipt of the initial franchise fee: a. Cash 600,000 Notes receivable 900,000 Unearned interest income 180,000 Franchise revenue 600,000 Unearned franchise fees 720,000 b. Cash 600,000 Notes receivable 900,000 Unearned franchise fees 1,500,000 c. Cash 600,000 Notes receivable 900,000 Deferred revenue from IFF , 1,320,000 Unearned interest income ” 180, 000 @ Cash 600,000 ’ Notes receivable 900, 000 as Franchise revenue 1,500,000 -17: Jenna i i a Ghas created a franchise based on the hit movie Harry Potter. Many jumped on the HP bandwagon, and several franchise agreem i December 2013 the following franchisees have open tape at ‘Ana Bea Cora Dora Cash paid Pl Notes face P500,000) 00,000 P100,000 100,000 P100,000 paid 350,000 Services completed 25% a foo 775,000 Probability of collection Likely Unlikely Link Mere continuing franchise fee 1% of NI T%NL oeikely Likely Period of refund W309 27809 Lasts 123108 1/08 What is the total initial ise fe ie ieerinrh franchise fees earned from these four franchisee at a. P 600,000 b. P1,200,000 c. P 930,000 d. P1,800,000Franchise Accounting 11-18: 11-19; 483 On January 2, 2013 JIG Comy i 7 2, A pany signed an agreement to operate as a Of ae Of Figaro, Inc. for an initial franchise fee ofP3.125,000 for 10 years. i amount, 40% was paid whent he agreement was signed and the balance ere in four semi-annual payments beginning June 30, 2013, JJG Company en eda non-interest bearing note for the balance. JJG’s credit rating indicates it it can borrow money at 24 percent on the loan of this type. Substantial Services costing P802,500 have been rendered by Figaro Inc. The present value of an annuity of P1 at 12% for 4 periods is P3.04. Ifthe collection of the note is not reasonable assured, the realized fit gross pro} for the year ended December 3 1, 2013 is: @ P1,321,345.50 5. PI,069,031.50 ¢. P1,316,861.00 @ = P1,338,307.00 Each of Doughnut Company’s twenty-one new franchisees contracted to pay an initial franchise fee of P300,000. By December 31, 2013, each franchisee had paid a nonrefundable P100;000 fee and signed a note to pay P100,000 Principal plus the market rate of interest on December 31 »2014, and December 31,2015. Experience indicates that one franchisee will default on the additional payments. Services for the initial fee will be performed in 2014. What is the entry of Doughnut to record the initial franchise fee on December 31, 2013? a. Cash 2,100,000 Notes receivable 4,200,000 Unearned franchise fees 6,300,000 b. Cash : 2,100,000 Notes receivable 4,200,000 Franchise revenue 6,300,000 ec. Cash 2,100,000 Notes receivable 4,200,000 Allowance for bad debts 200,000 Unearned franchise fees 6,100,000 d. Cash 2,100,000 Notes receivable 4,200,000 Allowance for bad debts 200,000 Franchise revenue 6,100,000484 11-20: 11-21: Chapter 1! . to pay an initial Each of the Starbacks Company's 21 new franchise ae had paid franchise fee of P30,000 By Dees Wensae note to pay P10,000 non-refundable P10,000 franchise fee an‘ ae 30,2014, ‘and December inci arket rate of interest on Decembe I Tania eee indicates that one franchisee will oe onthe addition payments, Services for initial fe willbe performed in 2014. What is the amount of the unearned franchise fee (net) would Starbacks report at December 31, 2013? P610,000 P400,000 P600,000 P630,000 ROR On January 2, 2013, Jose Miguel got the franchise of Figaro, Inc... The franchise agreement provides a P500,000 initial franchise fee, payable P1 00,000 upon signing of the franchise contract and the balance in four annual installments starting December 31, 2013. A present value using 12% as discount rate, the four installments would approximate P199,650. The fees once paid are not refundable. The franchise may be cancelled subject to the provisions of the agreement. Should there be unpaid franchise fees attributed to the balance of the initial franchise fee, it would become due and demandable upon cancellation. Further, the franchisor is entitled to a 5% continuing fee on gross sales payable monthly within the first ten days of the following month. Metro Bank guaranteed the note issued by Jose Miguel. T ) Bank |. Th operations yielded gross sales of 9 million. = ce On December 31, 2013, how much is the eamed franchise fee? P950,000 550,000 P749,650 P650,000 ROSAFranchise Accounting 11-22: 11-23: 485 On December 31,2 Ms. De Jesus to peal Blends, Inc. signed an agreement authorizing Ofthis amount, P200,000 inchisee for an initial franchise fee of 500,000. balance is due in ny Was received upon signing of the agreement and the 31,2014. The agreement proninee ano 100.00 each beginning December measure of the tare Provides that the down payment (representing a fair although future ital services rer.dered by Coffee Blends) is not refundable such that Seen are yet to be performed. Ms. De Jesus’ credit rating is December 31 '10n of the note is reasonably assured. The present value at T 31,2013 of the three payments discounted at 14% is P232,200. What is the amount of unearned franchise fee to bé recorded by Coffee Blends, Inc. on December 31,2013? P232,200 PO a. b c. P300,000 d. P422,200 On April 1, 2013, KFC, Inc. entered into franchise agreement authorizing Ms. Manalo to operate as a franchisee for an initial franchise fee of P1,209,375 payable as follows: P590,625 cash to be paid upon signing of the franchise contract and the balance in five equal annual payment every December 31 starting 2013. Ms. Manalo issued 12% interest bearing note for the balance. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales. If the collectability of the note receivable issued by Ms. Manalo is doubtful, how much is the net income on December 31, 20 13? P 11,137.50 P601,762.50 P 590,625 P 1,209,375 AD oRChapter IF = a TUTE bd On January 2, 2013, Mr. A. Cion entered into a franchise agreement with Jolibi, Rot 4 sell Jolibi products. The agreement provides of an initial franchise fee ol Lea payable as follows: P12,000,000 cash to be paid upon signing of the ontract, ae balance in four equal annual payments every December 31. Mr. A.C a sign ne interest-bearing note for the balance. The. agreement further provides that the franc! ' will assist the franchisee in locating the business site, designing and supervision in by construction of the building, and training of management and employees. The Sear also provides that the franchisee must pay a continuing franchise fees equal to 5% of its monthly gross sales. On July 31, 2013, the franchisor. ‘completed the initial services required in the contract at a costs of P2,000,000. The franchisee commenced business operations on November 2, 2013. The gross sales reported by the franchisee to the franchisor are: November sales, P580,000; and December sales P720,000. Required: Prepare all entries for 2013 in the books of the franchisor under the following ons: eons 5 a. The collection of the note is reasonably assured. b. The collection of the note is not reasonably assured. On January 5, 2013, Ms. Nancy Lee signed an Agreement to operate as a franchisee of Street Pizza, Inc. for an initial franchise fee of P1 ,600,000. Of this amount P600,000 was paid when the agreement was signed and the balance Payable in five annual Payments of P200,000 beginning December 31, 2013. Ms. Lee signed a non-interest bearing note for the balance. Ms. Lee’s credit rating indicates that it can borrow Money at 20% interest for a loan of this type. The present value of an annuity of Pl at 20% Periods is P2.9906. The contract includes a continuin; i I On November 25, 201 3, the franchisor substantially Performed the initial Services Provided in the contract at a cost of PI 79,718. The franchisee commenced operations paoentet 1, 2013. The gross sales of Ms. Lee for the month of December is Required: Prepare all entries on the books of the franchi : ing the collection of the note is reasonably, ieee 2013: a. b. Assuming the collection of the note isnot reasonably assured,Franchise Accounting date. i a eee os tates are to be 10%. The franchisor agrees to make market sles, find location, train the employees, and perform a few other relatively minor bi ‘ollowing transactions describe the relationship with Ms. Sunshine, a 2012 July 1: Entered intoa franchise agreement. Sept. 1: Completed a market study at a cost of P50,000. Nov.15: Found suitable location. Service cost, P30,000. 2013 Jan.10: Completed training program for employees, cost P50,000. Feb. I: Franchise outlet opened and commenced operations, July 1: Received first annual payment. Required: Prepare journal entries in the books of Mario’s Restaurant, Inc. in 2012 and 2013 to record the above transactions including adjusting entries at December 31, 2013. DU Load Triple G, Inc. sells franchises for fast food outlets in different parts of Mindanao. One such contract has been signed on January 10, 2013. The agreement provides for an initial franchise fee of P6,000,000 by the franchisee at the signing of the contract. The franchisor’s initial services costs are P2,250,000, to be incurred uniformly over the six- month period prior to the scheduled opening date of July 15, 2013. No future payments are to be made by the franchisee, although there will be continuing franchise fees of P180,000 per year for continuing services to be rendered by the franchisor. The normal return for the franchisor on continuing operations involving other such franchise outlets is 10%. Required: Prepare journal entries on the books of the franchisor to record all transactions through July 15, 2013. Support your entries with the necessary computations.Chapter 11 488 lock, Inc. The franchise agreement . Jasmin Sy purchased a franchise from Goldil a (000 at the we ies an inal franchise fee of P4,500,000, payable as follows: Lhe yeas afr date of signing, P2,000,000 three months after signing, and the sang fee of 2% of signing. The expected date of signing is January 2, 2013.A. oe rer eerie by the gross sales is also to be paid to the franchisor. Total sales for the y‘ po franchisee amounts to P2,000,000. Costs associated with the initial franchise fee are as follows: (a) Title to kitchen equipment, with a cost of P1,500,000, is to be transferred to the franchisee on the day the agreement is signed. The fair market value of the equipment is P1,800,000, (b) An additional P500,000 for initial services are incurred on January 18, 2013. ‘There are no associated continuing costs. Required: a. Prepare schedules in good from to determine the timing and amount of revenues through December 31, 2013. b. Prepare all journal entries on the books of the franchisor to record the transactions for the first year of the contract. bard m eed Max Fried Chicken, Inc. will sell a franchise to any franchisee under the followin, agreement: ® (a) A P2,500,000 initial franchise fee is to be made b i igni 7 ee made by the franchisee upon signing of (b) The contract states that the franchisor will Provide personnel for th i franchise and fora period of six months thereafter, during which timethey orth train local Personnel for takeover at the end of the Period. The cost to the fash ~ of this program is'estimated to be P700,000. ae Continuing costs are P200,000 per year for the first three years anal 00,000 05 year for the remaining seven years of the contract, The yearly sales are estin Bee BS P1:100,000 forthe first five years P7,500,000 for the was three yeas P4,500,000 for the remaining two years. The break ewes point for anes and like this is approximately P4,000,000 of sales per year, ‘ran operationFranchise Accounting 489 Sees ae eee indicates that the continuing costs represent 80% ket value. The market rate of intere is kind i inet ioe 'erest for operations of this kind is Required: Prepare a schedule which presents the amounts and timing ofall income to the franchisor over the life of the contract. Seven-Eleven, Inc. is in the business ofsselling small retail grocery outlets on a franchise basis. Ms. Gene Lim Signed an agreement for such a franchise on January 12,2013 for aterm of twenty years. The contract has the following provisions, which were agreed between the two parties: (a) An initial franchise fee Of P750,000 is to be paid in the following manner: P150,000 incash at the beginning of the franchise and the balance is a non-interest-bearing note for P600,000. The note is to be paid in five equal installments, each payable on the anniversary date of the ‘opening. (b) Of the initial franchise fee, a Portion is for equipment and fixtures, to which title is transferred at signing of the agreement, anda Portion is for inventory to be supplied one month before the opening date of July 1, 2013. The cost of equipment and fixtures is P50,000 and could be sold to yield a 20% gross profit if sold on the open, market. The retail value of the inventory is P80,000, which includes a 15% gross fit. (©) Continuing fees are to be three-fourths of one percent of monthly sales. Monthly sales are expected to be P330,000 for the first four years, P450,000 for the next 12 years, and P500,000 for the last four years. (@) Continuing costs for this franchise will be P3,000 per month for the entire contract period. This amount represents the cost of. advertisements, and supervisions. The market value of these services is P4,000. (e) Initial costs of services will total P70,000, and will be incurred Prior to the opening. (f)_ The franchisor has the option to discount the non-interest bearing note at any time during the payment period. Normally, notes are discounted immediately, at rate of 10%. Required: Assuming that the opening occurs as scheduled, and that the note is immediately discounted, Prepare the appropriate schedules to determine the timing and amounts of income to be recognized by Seven-Eleven, Inc. through December 3 1, 2013.