Question#1.Hot Pizza granted a franchise to Shake King. Shake King was to pay a franchise fee of P100,000 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 Hot Pizza, in connection with the P100,000 franchise fee, waived. The first year of operations generated a gross sale of P500,000. For the first year, Hot Pizza earned franchise fee of

a.105,000

b20,000

c5,000

d25,000

Question#2.Each of Potter Pie Co.'s 21 new franchisee contracted to pay an initial franchise fee of P30,000. By December 31, 2020, each franchisee had paid a non-refundable P10,000 fee and signed a note to pay P10,000 principal plus the market rate of interest on December 31, 2021 and December 31, 2022. Experience indicates that one franchise will default on the additional payments. Services for the initial franchise fee will be performed in 2021. What amount of net unearned franchise fees would Potter report at December 31, 2020?

a.610,000

b.600,000

c.630,000

d.400,000

Question#3. On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provided that the franchisee shall pay an initial franchise fee of P500,000 and on-going payment of royalties equivalent to 8% of the sales of the franchisee, On January 1, 2020, the franchisee paid down payment of P200,000 and issued a 3-year noninterest bearing note for the balance payable in three equal annual installments starting December 31, 2020. The note has a present value of P240,183 with an effective interest rate of 12%. On June 30, 2020, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred an indirect cost of P22,009. The franchisee started operation on July 1, 2020 and reported sales revenue amounting to P50,000 for the year ended December 31, 2020. The franchisee paid the first installment on its due date. If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for the year ended December 31, 2020 in relation to the initial franchise fee?

a.P88,037

b.P22,009

c.P66,028

d.P44,014

Question#4: Starbeans Inc. operates and franchises coffee shops around the world. On January 1, 2020, Star beans Inc. entered into a franchise agreement with a franchisee. As part of its franchise agreement, Starbeans requires a franchisee to pay an initial franchise fee in the amount of P1,500,000 of which P500,000 is payable at the date of perfection of contract and the balance payable in five equal annual instalments every December 31. The franchisee issued a non-interest-bearing note with an effective interest rate of 10% for the balance of the initial franchise fee and the present value of the note is P758,157. The franchise agreement also provides for ongoing payment of royalties of 5% based on sales revenue of franchisee. As part of the franchise agreement, Starbeans provides pre-opening services, including supply and installation of coffee equipment and cash registers with a total cost of P754,894. Starbeans evaluates and determines that the contract with the customer is a single performance obligation that need not be separated. As of July 1, 2020, Mejobee already satisfied its performance obligation to supply and install coffee equipment and cash registers to the franchisee. For the year ended December 31, 2020, the franchisee reported sales revenue in the amount of P1,000,000. What is the net income to be reported by Starbeans for the year ended December 31, 2020, if the collection of the note receivable is reasonably assured?

a.P503,263

b.P579,079

c.P553,263

d.P629,079

Question#5. Pizza Pie Inc. entered into a franchise agreement on December 31, 2029, giving Freshly Bake Corp. the right to operate as a franchise of Pizza Pie for 5 years. Pizza Pie charged Freshly Bake an initial franchise fee of P50,000 for the right to operate as a franchisee. Of this amount P20,000 is payable when the food fight signs the agreement, and the note balance is payable in five annual payments of P6,000 each starting on December 31, 2020, as part of the arrangement. Pizza helps locate the site, negotiate the lease or purchase of the site, supervise the construction activity, and provide employee training and the equipment necessary to be a distributor of its products. Similar training services and equipment are sold separately. Freshly Bake also promises to pay ongoing royalty payments of 1% of its annual sales (payable each Jan. 31 of the following year) and is obliged to purchase products from pizza at its current stand-alone selling price at the same time of purchase. The credit rating of Freshly Bake indicates that the money can be borrowed at 8%. The PV of an ordinary annuity of 5 annual receipts of P6,000 each discounted at 8% is 23,957. The discount of 6,043 represents the interest revenue to be accrued by pizza over the payment period. The allocation of transaction price is as follows: Rights to the trade name, market area, and proprietary know-how P20,000; Training service P9,957 and Equipment (cost of P10,000) P14,000. Training is completed in January 2030, the equipment is installed in January 2030, and Freshly Bake grand opening is Feb. 2, 2030. For the year ended December 31, 2030, the franchisee reported sales revenue amounting to P525,000. How much is the total revenue recognized on December 31, 2030?

A.P35,124

b.P51,124

c.P49,207

d.P43,957

Question#6.On January 1, 2020, Macas Inc. signed an agreement granting Mc Co. to operate as a franchisee for an initial franchise fee of P3,000,000. At that date, an amount of P1,000,000 was paid and the balance is payable in five annual payments beginning January 1, 2021. The present value of the annual payments at 11% is P1,043,300. The agreement provides that the down payment is non-refundable. On April 1, 2020 Mc Co. commenced its operations and all services related to franchise rights required of the franchisor has been substantially performed. In addition to the franchise rights, Macas shall provide a year-long training services beginning on the signing date. These services have a value of P120,000. What is the journal entry to be recorded on December 31, 2020?

a.Unearned franchise revenue 2,043,300

Unearned service revenue - training 90,000

Franchise revenue 2,043,300

Service revenue - training 90,000

b.No entry

c.Unearned franchise revenue 1,923,300

Franchise revenue 1,923,300

d.Unearned service revenue - training 90,000

Service revenue - training 90,000

Question#7. On January 1, 2020, an entity granted a franchise agreement to a franchisee. The contract provides that the franchisee shall pay an initial franchise fee of P500,000 and on-going payment of royalties' equivalent to 8% of the sales of the franchisee. On January 1, 2020, the franchisee paid down payment of P200,000 and issued a 3-year non-interest-bearing note for the balance payable in three equal annual installments starting December 31, 2020. The note has a present value of P240,183 with an effective interest rate of 12%. As of June 30, 2020, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred an indirect cost of P22,009. The franchisee started operation on July 1, 2020 and reported sales revenue amounting to P50,000 for the year ended December 31, 2020. The franchisee paid the first installment on its due date. If the collection of the note receivable is reasonably assured, what is the net income to be reported by the entity for the year ended December 31, 2020?

A.92,037

b.94,850

c.98,850

d.70,028