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198 Chapter 11 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, 2011. 11-2: c Initial franchise fee P5,000,000 Less: Cost of franchise
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  198 Chapter 11   CHAPTER 11MULTIPLE CHOICE ANSWERS AND SOLUTIONS11-1: b  No revenue is to be reported. Because the franchisor fails to render substantial services to the franchisee as of December 31, 2011.  11-2: c Initial franchise feeP5,000,000Less: Cost of franchise____50,000  Net incomeP4,90,000  11-3: a The total initial franchise fee of  P00,000  is to be recognized as earned because the collectibility of the note for the balance is reasonably assured.  11-4: b Cash downay!entP 00,000Collection of note alying to rincial__#00,000  !evenue from initial franchise feeP 300,000  11-5: a Cash downay!ent, $anuary #, #00%P#,000,000Collection alying to rincial, &ece!ber ' , #00%_ ,000,000Total Collection',000,000(ross rofit rate )*5,000,000+500,000 ÷  5,000,000-_____0/  !eali ed #ross profit, December 31, 200$P2,%00,000  11-6: b ace 1alue of the note *P ,#00,000 + P200,000P %00,000Present 1alue of the note *P#00,000 3 #. __5%#,000 &nearned interest income, 'ul( 1, 200$P 21$,000  11-7: d Initial franchise feeP ,#00,000Less: unearned interest inco!e__# %,000  Deferred revenue from franchise feeP 9$2,000  11-8: d Initial franchise feeP 500,000Continuing franchise fee *P200,000 3 .05___#0,000Total re1enue5#0,000Cost___ 0,000  Net incomeP 10,000  Franchise Accounting 11-: b &eferred 4e1enue fro! franchise fee:&ownay!entP,000,000Present 1alue of the note *P ,000,000 3 #. #, 0,000P%, 0,000Less: Cost of franchise fee _#,000,000&eferred gross rofitP, 0,000(ross rofit rate *, 0,000 ÷  %, 0,000 66.55/&ownay!ent *collection during #00%P,000,000(ross rofit rate ___66.55/4ealized gross rofit fro! initial franchise feeP2,5',0007dd: Continuing franchise fee *5,000,000 3 .05 __#50,000TotalP2,0',000Less: ranchise e8ense ___50,0009erating inco!eP2,%5',000Interest inco!e, #' 05 *P#, 0,000 3 2/ 3  # __#0',600  Net income P,0),%00  11-1!: b ace 1alue of the note recei1ableP ,%00,000Present 1alue of the note recei1able ,#',00 &nearned interest incomeP 3),100 Initial franchise feeP',000,000Less: ;nearned interest inco!e5', 00  Deferred revenue from franchise fee P2,4)3,900   11-11: b 4e1enues fro!:7d<usted sales 1alue of I *P ,000,000 = #%#,#0 P 6 6,620Continuing franchise fee *P#,000,000 3 .05 00,000 *otal revenue from franchise fee  s  P$1%,%40  11-12: a 4ealized gross rofit fro! initial franchise fee )*'50,000 > %0,000 8 '6/-P , 00Continuing franchise fee *P # ,000 > P 26,500 8 5/ ___ ',2#5Total re1enue#0,5#5?8enses ___2#,00 @et oerating rofit ,#5Interest inco!e *P00,000 8 5/ 8  # ___6,500  Net income P 234,12 200 Chapter 11 11-13: c Cash down+ay!entP 5,000Present of the note *P20,000 8 '.0'62 __ # ,2 *otalP 49)   11-14: a Initial franchise feeP 50,000Continuing franchise fee *P200,000 8 5/ __#0,000 *otal revenue P %0,000  11-15: b Initial franchise fee = down+ay!ent *P 00,000  5P #0,000Continuing franchise fee *P500,000 8 /__  *otal earned franchise fee   P 2,000 11-16: a The unearned interest to be credited is P %0,000, the difference between the face 1alue and the resent 1alue of the notes recei1able *00,000 = 6#0,000.The non+refundable down ay!ent of P00,000 is recognized as re1enue since it is a fair !easure of the ser1ices already erfor!ed by the franchisor. 11-17: b Cora *P 00,000 > P500,000 P 00,000&ora *P 00,000 > P500,000 00,000 *otal P1,200,000 11-18: c &own ay!ent *', #5,000 8 20/ P ,#50,000Present 1alue of notes recei1able * ,%65,0002 2%,650 8 '.02 ,2#5,0007d<usted sales 1alue of initial franchise fee #,65,000&irect cost of ser1ices %0#,500(ross rofit ,%6#,500(ross rofit rate * ,%6#,500 A #,65,000 60/ Franchise Accounting  Date Collection Interest PrincipalBalance of PV of NR  P ,2#5,000'0 2%,650 6 ,000 #6,650 , #6,#50 #'0 2%,650 '5,#60 ''',2%0 6',660Total collection alying to rincial ' ,#'0&own ay!ent ,#50,000Total collection ,%% ,#'0(ross rofit rate 60/  !eali ed #ross profit on initial franchise fee 1,31),$)1 11-1: c11-2!:d The total initial franchise fee. 11-21:a#
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