On December 31, 2011, Coffee Blends, Inc. signed an agreement authorizing Ms. De Jesus to operate as a franchisee for an initial franchise fee of P500,000. Of this amount, P200,000 was received upon signing of the agreement and the balance is due in three annual payments of P100,000 each beginning December 31, 2012. The agreement provides that the down payment (representing a fair measure of the substantial initial services rendered by Coffee Blends) is not refundable although some future services (insignificant) are yet to be performed. Ms. De Jesus’ credit rating is such that the collection of the note is reasonably assured. The present value at December 31, 2011 of the three payments discounted at 14% is P232,200. What is the amount of unearned franchise fee to be recorded by Coffee Blends, Inc. on December 31, 2011? a. P232,200 b. P0 c. P300,000 d. P422,200

On December 31, 2011, Coffee Blends, Inc. signed an agreement authorizing Ms. De Jesus to operate as a franchisee for an initial franchise fee of P500,000. Of this amount, P200,000 was received upon signing of the agreement and the balance is due in three annual payments of P100,000 each beginning December 31, 2012. The agreement provides that the down payment (representing a fair measure of the substantial initial services rendered by Coffee Blends) is not refundable although some future services (insignificant) are yet to be performed. Ms. De Jesus’ credit rating is such that the collection of the note is reasonably assured. The present value at December 31, 2011 of the three payments discounted at 14% is P232,200. What is the amount of unearned franchise fee to be recorded by Coffee Blends, Inc. on December 31, 2011? a. P232,200 b. P0 c. P300,000 d. P422,200

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 7C: On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial...

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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.
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