The customer was able to pay the first annual

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The customer was able to pay the first annual installment and corresponding interest due. However, after the payment of the second interest due, the customer defaulted on the second annual installment which resulted to the repossession of the car sold with appraised value of P110,000. On December 31, 2019, the repossessed car was resold for P140,000 after reconditioning cost of P10,000. 39. What is the entity’s realized gross profit for the year ended December 31, 2018? A. 50,000 B. 120,000 C. 108,000 D. 128,000 40. What is the loss on repossession for the year ended December 31, 2019? A. 30,000 B. 20,000 C. 10,000 D. 40,000
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Page 15 Numbers 41, 42 and 43 (Revenue Recognition – Franchise Fees) On January 1, 2018, an entity granted a franchise to a franchisee. The franchise agreement required the franchisee to pay a nonrefundable upfront fee in the amount of P400,000 and on-going payment of royalties equivalent to 5% of the sales of the franchisee. The franchisee paid the nonrefundable upfront fee on January 1, 2018. In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the following performance obligations: To construct the franchisee’s stall with stand-alone selling price of P200,000. To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price of P250,000. To allow the franchisee to use the entity tradename for a period of 10 years starting January 1, 2018 with stand-alone selling price of P50,000. On June 30, 2018, the entity completed the construction of the franchisee’s stall. On December 31, 2018, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the year ended December 31, 2018, the franchisee reported sales revenue amounting to P100,000. The entity had determined that the performance obligations are separate and distinct from one another. 41. What is the amount of nonrefundable upfront fee to be allocated to the construction of the franchisee’s stall? A. 200,000 B. 160,000 C. 250,000 D. 120,000 42. What is the amount of revenue to be recognized in relation to the use of delivery of raw materials for the year ended December 31, 2018? A. 100,000 B. 200,000 C. 60,000 D. 75,000 43. What is the amount of revenue to be recognized in relation to the use of entity’s tradename for the year ended December 31, 2018? A. 5,000 B. 4,000 C. 50,000 D. 10,000
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Page 16 Numbers 44 and 45 (Revenue Recognition – Net Income of Franchisor) On January 1, 2018, 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, 2018, the franchisee paid downpayment of P200,000 and issued a 3-year noninterest bearing note for the balance payable in three equal annual installments starting December 31, 2018. The note has present value of P240,183 with effective interest rate of 12%. On June 30, 2018, the entity completed the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity incurred indirect cost of P22,009.
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