PROBLEM 1

PANDEMONAY Inc. franchises its name to different enterprise throughout the country. The franchise agreement requires the franchisee to make an initial payment of P80,000 on the agreement date and the balance, covered by a P160,000 noninteresting bearing note, in four equal annual payments beginning one year from the agreement date. PANDEMONAY, the franchisor agrees to make market studies, find a location, train the employees, and perform a few other minor related services. The initial payment is refundable until the date of opening.

The following describe the relationship with a newly appointed franchisee

Mr. T. Khoy: (assume an interest rate of 10%).

July 01, 2018Entered into franchise agreement.

Aug. 15,2018Completed market study at cost of P25,000.

Nov. 10,2018Found suitable location; service cost, P10,000.

Jan. 10, 2019Completed training of employees; cost, P35,000.

Jan. 15, 2019Franchise outlet is opened.

Required:

Give the journal entries in 2018 and 2019 to record the above transactions, including any adjusting entry/entries at the 2018 year-end.