porate Recogrtion Contract with Customers Customers Franchiveand Consignment __3TT MULTIPLE CHOICE PROBLEMS/THE franchise” 1 to 5 are based on the following Information: me that AntonTech starts seling techstop Tranchises, TrveTech chor iseesan initialfee in exchange for (a) the exclusive ‘eC to operate way Techstopin G particular area for a five-year period, (b} the eau ent never fe ciskentocnd repalr Antontech products, and (el raining services 0 er a two-yearperiod. Si soe Pret etewnore ist Similar equipment and training can be 1, How mony performance objigations exist in this contract® BI a 3 AntonTech sho ynize revenue for the right to operate alechshop? a. No ransac cc. Point in Time b. No re d. Over Time AntonTech s! e enue for the equipment? ti c. Point in Time d. Overtime revenue for the training? c. Point in Time Over Time franchisees an additional fee for ongoing ‘pany, the additional fee be recognize os ¢. Point in Time d. OverTime aa on the following Information: Dominador's enters into a fra hise agreement on December 31, 20x7, ging Domin Co ; Sperate as a franchisee of Dominador’s Fizza for 5 years. Dominc sc Toming an initial franchise tee of 475,000 for the right to operate os rise. Of this amount, P190,000 is payable when Doming Corp. signs the agreerr ‘ent, and the balance is payable in five annual Payments of P57 000 each ecember 3! meade the following for allocation of the transaction price at December 31, : Rights to the trade name: market area, technical and proprietary know-how .. i . P190,000.00 Serviges = 1OINING.E 1C. nneeamernmemcnen sae 94,591.50 Machinery and equipments, etc. (costing: 95,000} ....._133,000.00 PA17,591.50 Total transaction priceae don August 1, 20x5, and ‘agreement is signe fhe franchise commences operation on November } eT ‘ssume thal the total training fees includes troining services for the penoel agp the franchise opening (P5.500 value) and for 3 monins 19 opening, The journal entry on August 1. 20x5 would include | | ©. acredit to Unearned Service Revenve for F) a b. actedit to Uneamed Service Revenne for P6. evenue for P38, a debit fo Sales Revenue fo : §. - G debit to Uneamed Franchise Revenve for P40,000 Assuming that the franchise On Janvary 1, 20x5 Dairy Treats, Inc. entered into a franchise agreement eine company allowing the company to do business under Dairy Treats ame. Dairy Treats had performed substantially all required ecana vlonvery 1,20x5, ond the franchisee paid the initial franchise fee of PB4Os ull on that d + fies that the franchisee must pay a continuing 0 ally, of which 20% must Ponudvert 1 € uld Dairy Treats make. on January 1. 2x5 to record receipt oft schise fee and the continuing franch 72,000 912,000 840,000 57,600 14,400 d. Prepai Co! Franchise Fee Revenue 840,000 Revenue from Franchise Fees 72,000 Uneomed Franchise Fees 14,400 Wynne inc. charges an initial franchise fee of P1,840,000, with P400,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is P1,091,744. The franchisee has the option to purchase P240,000 of equipment for P192,000. Wynne has substantially provided all initial services required and collectibilty of the paymentsis reasonably assured. The amount of revenue from franchise fees: a. P 400,000 cc. PN,A91,744. b. P1,443,744, d. P1,840,000.Revenue Recognition ~Contract wi Revenue Recogmition Contract with Customers: Franchise and Consignment 323 24. ae eee ‘an initial fee of P1,600,000 for a franchise, with P320,000 ee athe agreement & sored xia alarms four annual Ponerts Tos oem oe eckson payments, discounted at 10%is LoL Aa franchisee has the right to purchase P60,000 of kitchen orion x . supplies for P50,000, An additional part of the inifial fee is sola ae an be provided by Pasta inn during the next five years. The advertising is P1,000 a month. Collectibilty of the payments is reasonably assured and Pasta ln h i i as performed ail the init required by the contract a ws How much revenue from franchise fee be recognized when the agreement is signed? c. P1,590,000 gd. P1,600,000 tems 25 and 26 are based on the following information: I t in initial franchise fee of P75,000 for the right to wen Delight. Of this amount P25,000 is collected a! annual instalments of alve of P41 ,402. As part of the ‘iso provides training (with a fair value of of tke store ready to open. The franchise agreement mpleted, and the store opens on July 1 Frozen Deli collected in f is signed of Apr trair C ed, a 205. Bones + snye from training and franchise on Apfil |. 20xs fo: b. Pé4, 4 26, The on ver .m training and franchise on July 1, 20x9 fo: # c. P6640 b. Pé64d d.- P7500 ltems 27 to 32 are based on the following information: © Pacific ¢ inc. ch joMnital fee of P70,000. Upon the signing of the agre¢ ers 3 years), payment of P28,000 is due. Thereafter, three annual paym ‘are required. The credit rating of the franchisee Issuch that it would have to pay interest at 10% to borrow money. The franchise Ggreement signed on May 1, 20x5, and the franchise commences operation on July 1, 20x5. 27. The amount of franchise revenue on MOY 1,.20x5 ossuming no future services The required by the franchisor ance the {franchise starts operations: a. Zero. c. Pé2816 bb. P28,000 d. P70,000f point in time. ning of contract. shige rights are completed 51. Franchise revenues are recognized over time | @. franchise rights are transferred at a b. the franchisee fee is payable upon si! ©. _ performance obligations regarding fran when the franchise opens. a) d. None of these answer choices are Cormect ccounting for revenue from 52. Which of the following is not true about franchise arrangements? ‘a. Franchise arangements often include a p' for a license as well as for delivery © b. Franchise arrangements typically performance obligations for wt ich revenue fol .e obligation and services. one of more recognized ata “4 point in time. c. Franchise arrangements typi one or more performance obligations for which revenue is recognized over@ period of time. g Franchise arrangements typically Je one perfornnnaa obligation because the goods arrangement are not separately ide cluded in the PERS for Smatl and Medium-Sided Entities (SMEs) - Franchis. e FUlPFRS: ond PERS for SMES share the sare pi lowever, the PFRSS for SMES ore dratied in simple xc od SO guidance on how to apply the principles me shuose cnd piocognition — Contract with Cust peverue Recognition Contract with Customers: Franchise and Cons actnith Customer: FromeheandConignien 348 20000 70.900 5,200 5.200 7,582 7.582 3791 3791 ally include multiple performance obligations because a> July 1. 20%5: To record revenue trom detive orien Unearned Franchise Revenue... ever” of fonchise rights Franchise Revenue So Pome a4 December 31, 20x5 Cash {P260,000 x 2%) Franchise Revenue — continuing Unearne Franchise Revenue (P75816 / 40 x 6) Franchise Revenue (ongoing fees for brand maintenance) st income/discount on notes receivable. Interest income (P75,816 x 10% x 6/12) “ac. 45. 4 46. 0 47. b @ bd 8.0 @. b. 51. b 52, ded in the arrangement are both, fable opable of being distinc!