CHAPTER 11 - Franchise Accounting 177 CHAPTER 11 MULTIPLE...

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Franchise Accounting 177 CHAPTER 11 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 11-1: b No revenue is to be reported. Because the franchisor fails to render substantial services to the franchisee as of December 31, 2008. 11-2: c Initial franchise fee P5,000,000 Less: Cost of franchise ____50,000 Net income P4,950,000 11-3: a The total initial franchise fee of P500,000 is to be recognized as earned because the collectibility of the note for the balance is reasonably assured. 11-4: b Cash downpayment P 100,000 Collection of note applying to principal __200,000 Revenue from initial franchise fee P 300,000 11-5: a Cash downpayment, January 2, 2008 P2,000,000 Collection applying to principal, December 31, 2008 _1,000,000 Total Collection 3,000,000 Gross profit rate [(5,000,000-500,000) ÷ 5,000,000] _____90% Realized gross profit, December 31, 2008 P2,700,000 11-6: b Face value of the note (P1,200,000 - P400,000) P 800,000 Present value of the note (P200,000 X 2.91) __582,000 Unearned interest income, July 1, 2008 P 218,000 11-7: d Initial franchise fee P1,200,000 Less: unearned interest income __218,000 Deferred revenue from franchise fee P 982,000 11-8: d Initial franchise fee P 500,000 Continuing franchise fee (P400,000 X .05) ___20,000 Total revenue 520,000 Cost ___10,000 Net income P 510,000
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178 Chapter 11 11-9: b Deferred Revenue from franchise fee: Downpayment P6,000,000 Present value of the note (P1,000,000 X 2.91) 2,910,000 P8,910,000 Less: Cost of franchise fee _2,000,000 Deferred gross profit P6,910,000 Gross profit rate (6,910,000 ÷ 8,910,000) 77.55% Downpayment (collection during 2008) P6,000,000 Gross profit rate ___77.55% Realized gross profit from initial franchise fee P4,653,000 Add: Continuing franchise fee (5,000,000 X .05) __250,000 Total P4,903,000 Less: Franchise expense ___50,000 Operating income P4,853,000 Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12 __203,700 Net income P5,056,700 11-10: b Face value of the note receivable P1,800,000 Present value of the note receivable 1,263,900 Unearned interest income P 536,100 Initial franchise fee P3,000,000 Less: Unearned interest income __ 536,100 Deferred revenue from franchise fee P2,463,900
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11-11: a Revenues from: Initial franchise fee P1,000,000 Continuing franchise fee (P2,000,000 X .05) 100,000 Total revenue from franchise fee s P1,100,000 11-12: d Realized gross profit from initial franchise fee [(350,000 + 90,000) x 37%] P 162,800 Continuing franchise fee (P121,000 + P147,500) x 5% ___13,425 Total revenue 176,225 Expenses ___42,900 Net operating profit 133,325 Interest income (P900,000 x 15%) x 6/12 ___67,500 Net income P 200,825 Franchise Accounting 179 11-13: c Cash down-payment P 95,000 Present of the note (P40,000 x 3.0374) __121,496 Total P 216, 496 11-14: a Initial franchise fee P 50,000 Continuing franchise fee (P400,000 x 5%) __20,000
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CHAPTER 11 - Franchise Accounting 177 CHAPTER 11 MULTIPLE...

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