What is the carrying value of the franchise at December 31, 2022? How much is the amortization expense for the year 2021?
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On April 1,2021, Beauty Company purchased a franchise for P3,000,000. In addition , the franchise contract stipulates that Beauty shall pay to the franchisor, 5% of its sales exceeding P6,000,000, payable at the end of the month following the end of every quarter. For the nine months ended Dec. 31, 2021, Beauty's s sales amounts to P8,500,000. The estimated useful life of the franchise is 10 years. It is the company’s policy to amortize to the nearest month.
What is the carrying value of the franchise at December 31, 2022?
How much is the amortization expense for the year 2021?
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- On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?Brilliant Company sold a franchise to sell its products for P5,000,000 on January 1, 2021. The initial fee is payable P500,000 upon signing of the contract and the balance in 5 equal installments every December 31, evidenced by a 12% promissory note. The agreement provides that the franchisor will assist in the location of site, supervision of the building construction, project study or market survey, assistance in the acquisition of facilities, training and management of personnel, quality control, advertising and promotion. It was also agreed that the franchisee will pay a royalty fee equal to 5% of its average sales every calendar year. The franchise outlet was opened on May 1, 2021 and the average monthly sales of the franchisee is P100,000. The franchisor has incurred P1,500,000 related to the services required by the contract. 1. How much is the Initial Franchise Fee Revenue to be recognized in 2021? 2. How much is the Continuing Franchise Fee Revenue to be recognized in 2021? 3.…
- On April 1,2021, Red Company purchased a franchise for P3,125,000. In addition, the franchise contract stipulates that Red shall pay to the franchisor, 5% of its sales exceeding P5,000,000, payable at the end of the month following the end of every quarter. For the nine months ended Dec. 31, 2021, Red company's sales amounts to P8,500,000. The estimated useful life of the franchise is 10 years. It is the company's policy to amortize to the nearest month. a. How much is the amortization expense for the year 2021? b. How much is the franchise fee expense for the year 2021?On April 1, 2020, Vancouver Company purchased from Sunbucks Company (franchisor), a franchise to operate a 24-hours cafe at Eastwood for P3,125,000. In addition, the franchise contract stipulates that Vancouver shall pay Sunbucks Company 5% of its sales exceeding P5,000,000, payable at the end of the month following the end of every quarter. For the nine months ended December 31, 2020, Vancouver Company's sales amounted to P8,500,000. Vancouver estimates that the useful life of the franchise is 10 years. It is the company's policy to amortize to the nearest month.How much is Vancouver Company's amortization expense and franchise fee expense for the year 2020?On January 2, 2020, Cluckin' Bells Company entered into a franchise agreement with Mr. Princeton to sell their products. The agreement provides for an initial franchise fee of P2,500,000, payable as follows: P700,000 cash to be paid upon signing of the contract, and the balance in five equal annual payments every December 31, starting December 31, 2020. Cluckin' Bells Company signs 15% 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. On October 29, the franchisor completed the initial services required in the contract at a costs of P800,000, and incurred indirect costs of P160,000. The franchisee commenced business operations on November 2, 2020. The gross sales reported to the franchisor are November sales, P82,000 and December sales, P95,000. The first installment payment was made in due date. The collectability of the note is reasonably assured. 19. In its income…
- On December 1, 20x1, ABC Co. enters into a franchise contracts with XYZ, Inc. The franchise provides XYZ, Inc. with the right to use ABC's trade name and sell ABC's products for 5 years. The contract requires an initial franchise fee of P120,000 and a continuing franchise fee of 3% of XYZ's sales payable at the end of each month. The P120,000 initial franchise fee is non-refundable and payable in full ay contract inception. ABC Co., as a franchisor, has developed a customary business practice to undertake the following pre-opening activities: a. Assistance in site selection, lease negotiation, and fitting-out of the premises. b. Initial training in all facets of operating the business. c. Assistance with staff recruitment and training. d. Advertisement and promotion. e. Preparations for and professional execution of the grand opening. ABC Co. does not provide the activities above separately from the granting of the franchise right. ABC Co. does not provide the activities…Pacific Crossburgers Inc. charges an initial franchise fee of $70,000. Upon the signing of the agreement (which covers 3 years), a payment of $28,000 is due. Thereafter, three annual payments of $14,000 are required. The credit rating of the franchisee is such that it would have to pay interest at 10% to borrow money. The franchise agreement is signed on May 1, 2020, and the franchise commences operation on July 1, 2020. Instructions Prepare the journal entries in 2020 for the franchisor under the following assumptions. (Round to the nearest dollar.) a. No future services are required by the franchisor once the franchise starts operations. b. The franchisor has substantial services to perform, once the franchise begins operations, to maintain the value of the franchise. c. The total franchise fee includes training services (with a value of $2,400) for the period leading up to the franchise opening and for 2 months following opening.On December 1, 20x1, ABC Co. enters into a franchise contracts with XYZ, Inc. The franchise provides XYZ, Inc. with the right to use ABC's trade name and sell ABC's products for 5 years. The contract requires an initial franchise fee of P120,000 and a continuing franchise fee of 3% of XYZ's sales payable at the end of each month. The P120,000 initial franchise fee is non-refundable and payable in full ay contract inception. ABC Co., as a franchisor, has developed a customary business practice to undertake the following pre-opening activities: a. Assistance in site selection, lease negotiation, and fitting-out of the premises. b. Initial training in all facets of operating the business. c. Assistance with staff recruitment and training. d. Advertisement and promotion. e. Preparations for and professional execution of the grand opening. ABC Co. does not provide the activities above separately from the granting of the franchise right. ABC Co. does not provide the activities…
- On January 1, 2022, Blight Stones obtained a franchise from Doug Corporation to sell for 20 years Doug’s product. The initial franchise fee as agreed upon shall be P6,000,000, and shall be payable in cash, P1,000,000, when the contract is signed and the balance in four equal installments thereafter, as evidenced by a noninterest bearing note. The agreement provides that the franchisor shall provide the necessary initial services required under a franchise contract. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor. Revenue from the franchise for 2022 was P5,000,000. The present value factor of P1 at 12% for 4 periods 0.6355 The present value factor of P1 ordinary annuity at 12% for 4 periods 3.0373 23) How much is the initial cost of the franchise? 24) How much is the total expenses for the year 2022?On January 1, 2019, Daisy company signed an agreement to operate as a franchisee for an initial franchise fee of9,600,000 for a period of 10 years. Of this amount 3,600,000 was paid when the agreement was signed and thebalance payable in five annual installments of 1,200,000 at every year-end. The franchisee signed a non-interestbearing note for the balance. The market rate of interest for this note is 10%. The PV of 1 at 10% for 5 periods is 0.62,and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. In return for the initial franchise fee, the franchisorwill help in locating the site, negotiate the lease or purchase the site, supervise the construction activity and providetraining to employees. The initial services required of the franchisor are substantially performed. What is the amountof amortization of franchise in 2019?On January 1, 20x1, Sunbathe Co. enters into a contract with a customer to transfer a license. The initial franchise fee is P100,000 payable as follows: 20% cash down payment upon signing of the contract and the balance is payable in 4 equal annual installments starting December 31, 20x1. The appropriate discount rate is 12%. The contract states that the initial franchise fee consists of P30,000 consideration for the equipment that Sunbathe Co. will transfer to the customer and the P70,000 balance for the franchise rights. • Sunbathe Co. regularly sells the equipment and the license separately. The stand-alone selling prices are P40,000 for the equipment and P38,000 for the license. The license provides the customer the "right to use" Sunbathe's intellectual property as it exists at the point in time at which the license is granted. The equipment is transferred to the customer on January 15, 20x1, while the license is transferred to the customer on February 1, 20x1. Provide journal…