PROBLEM NO. 1 Information concerning FRANCISCO CORPORATION's intangible assets is as follows: 1. On January 1, 2019, Francisco signed an agreement to operate as a franchisee of Kopya Copy Service, Inc. for an initial franchise fee of P8,500,000. Of this amount, P2,500,000 was paid when the agreement was signed and the balance is payable in four annual payments of P1,500,000 each beginning January 1, 2020. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The implicit interest rate for a loan of this type is 14%. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Francisco's revenue from the franchise for 2019 was P9,000,000. Francisco estimates the useful life of the franchise to be ten years. 2. Francisco incurred P7,800,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 2019. Legal fees and other costs associated with registration of the patent totaled P1,640,000. Francisco estimates that the useful life of the patent will be 8 years. 3. A trademark was purchased from Banawe Company for P4,000,000 on July 1, 2016. Expenditures for successful litigation in defense of the trademark totaling P1,000,000 were paid on July 1, 2019. Francisco estimates that the useful life of the trademark will be 20 years from the date of acquisition. 4. During the current year, Francisco incurred the following costs to develop and produce a routine, low-risk computer software product. Completion of detailed program design P3,900,000 Costs incurred for coding and testing to establish technological feasibility 3,000,000 Other coding costs after establishment of technological feasibility 7,200,000 Other testing costs after establishment of technological feasibility Costs of producing product masters for training materials Duplication of computer software and training materials from 6,000,000 4,500,000 product masters (3,000 units) 7,500,000 2,700,000 Packaging product (1,500 units) Questions: 1. What is the carrying value of the franchise at December 31, 2019? 2. What is the carrying value of the patent at December 31, 2019? 3. What is the carrying value of the trademark on December 31, 2019? 4. What is the initial cost of the computer software? 5. The total expenses resulting from the transactions that would appear on Francisco's income statement for the year ended December 31, 2019, should be 025 -000000000- PROBLEM NO. 2 Shown below is the Contributed Capital section of the December 31, 2018, Statement of Financial Position of CANDIRIT COMPANY, your audit client. Preference share capital (6%, P50 par, 24,000 shares authorized, 10,200 shares issued and outstanding) 36,000 shares issued and outstanding) Ordinary share capital (P10 stated value, 90,000 shares authorized, Preference shares subscribed (2,400 shares subscribed at P54 per share) Share premium-preference shares Share premium-ordinary shares Total contributed capital The following equity-related transactions occurred during 2019: P510,000 360,000 120,000 38,400 216,000 P1.244.400 Jan. 3 Granted a compensatory share option plan for its key executives. The options vest after a 3-year service period. The estimated fair value of the options expected to be exercised is P243,000. Mar. 6 Received the remaining P40 per share on the subscribed preference shares and issued the shares. Apr. 24 Sold 1,800 preference shares at P55 per share. May 5 Received a subscription down payment of P6 per share on 3,000 ordinary shares. The remaining P11 per share balance is due in 60 days. June 6 Sold 2,000 ordinary shares at P17 per share. July 3 Received the remaining balance on subscribed ordinary shares and issued the shares. Sept. 22 Purchased an equipment by paying P35,000 and issuing 3,000 ordinary shares and 1,700 preference shares. Ordinary and preference shares are currently selling for P19 and P58 per share, respectively. Oct. 13 Reacquired 2,700 ordinary shares at P19.50 per share. The company uses the cost method to account for treasury shares. Nov. 14 Issued for P96,000 a combination of 2,100 ordinary shares and 12% bonds with a face value of P60,000. The ordinary share is currently selling for P18 per share. No market value exists for the bonds. Dec. 15 Reissued the 2,700 treasury shares at P20.50 per share. Dec. 28 Distributed a P3 per share dividend to all outstanding preference shares and a P1.50 per share dividend to all ordinary shares outstanding on this date (debit Retained earnings and credit cash for each dividend). Based on the preceding information, determine the following: 6. Preference share capital 7. Ordinary share capital 8. Share premium-preference 9. Share premium-ordinary 10. Total contributed capital -000000000- ---000000000- PROBLEM NO. 3 At the beginning of year 1, an entity grants to a senior executive 3,000 share options, conditional upon the executive's remaining in the entity's employ until the end of year 3. The exercise price is P40. However, the exercise price drops to P30 if the entity's earnings increase by at least an average of 10% per year over the three-year period. On grant date, the entity estimates that the fair value of the share options, with an exercise price of P30, is P15 per option. If the exercise price is P40, the entity estimates that the share options have a fair value of P12 per option. During year 1, the entity's earnings increased by 12%, and the entity expects that earnings will continue to increase at this rate over the next two years. The entity therefore expects that the earnings target will be achieved, and hence the share options will have an exercise price of P30. During year 2, the entity's earnings increased by 13%, and the entity continues to expect that the earings target will be achieved. During year 3, the entity's earnings increased by only 3%, and therefore the earnings target was not achieved. The executive completes three years' service, and therefore satisfies the service condition. Because the earnings target was not achieved, the 3,000 vested share options have an exercise price of P40. Based on the preceding information, answer the following: 11. What is the compensation expense in year 1? 12. What is the compensation expense in year 2? A. 13. What is the compensation expense in year 32 14. At the end of year 2, the entity should report share options outstanding of