Dominador's Pizza Inc. enters into a franchise agreement on December 31, 20x7. giving Dian IV - Franchise Arrangements: Initial Franchise Fee and Continuing Franchise Fee proyes Dian Jaycerette an initial franchise fee of P570,000 for the right to operate as a Joyceretfe the right to operate as a franchisee of Dominador's Pizza for 5 years. Dominador's te balance is payable in five annual payments of P68,400 each on December 31. fonchisee. Of this amount, P228,000 is payable when Dian Jaycerette signs the agreement, and The credit rating of Dian Jaycerette indicates that money can be borrowed at 8%. The present 9872916. The uneared interest income or discount on notes amounted to P69,084 [(P68,400 x 5 ole of an ordinary annuity of five annual receipts of P68,400 each discounted at 8% is Jeasless P272916) represents the interest revenue to be accrued Dominador's Pizza Inc. over the payment period. .... the transaction price then amounted to P500,916 computed as follows: Down payment. P 228,000.00 PV of an ordinary annuity of 8% for 5-years: (P68,400 x 3.99). 272216,00 Total transaction price.. P.500.216.00 Consider the following for the allocation of the transaction price on December 31, 20x7: Rights to the trade name, market area, technical and proprietary know-how. P 228.000.00 Services - training, etc......... 113,316.00 Machinery and equipments, etc. (costing, P114,000). 159.600.00 Total transaction price P500.916,00 Training is completed in February 1, 20x8, the equipment is installed in February 2, 20x8, and Dian Joycerette holds a grand opening on February 4, 20x8. On February 4, 20x8, franchise opens. Dominador's satisfies the performance obligations related to the franchise rights, training, and equipment. Dian Jaycerette also promises to pay ongoing or continuing fee (royalty payments) of 1% of its annual sales (payable every January 31 of the following year) and is obliged to purchase products from Dominador's at its current stand-alone selling prices at the time of purchase. Required: 1. Prepare any journal entries to record the revenue arrangement on: 9. December 31, 20x7. the date of signing and receipts of upfront payment b. February 1, 20x8, training is completed. C. February 4, 20x8, franchise outlet opened. d. December 31, 20x8, ongoing or continuing fee/royalty received. 2. Determine the following: a How many performance obligations exists in this contract b. When will Dominador recognize revenue for the rights (combined) to the trade name, market area and proprietary know-how which give rise to a single performance obligation C. How much revenue (franchise revenue, service revenue and sales revenue - machinery and equipment's) be recognized on December 31, 20x7? d. How much revenue (franchise revenue, service revenue and sales revenue - machinery and equipment) be recognized on February 4, 20x8* e. How much continuing franchise revenue be recognized on December 31, 20x8. assuming the sales of P5,985,000 was generated for the first year of operations? 1. How much total franchise revenue in relation to (d) and (el] on December 31, 20x8 9. In relation to (t), the gross profit on December 31, 20x8 amounted to? h. In relation to (U). the net income on December 31, 20x8 amounted to
