Question

ABC Dry Cleaners, Inc. charges an initial franchise fee of P195,000. When the agreement is signed, a payment of P75,000 is due, followed by four annual payments of P30,000 at the end of each period. Ajax's normal borrowing rate is 12% PV for 4 periods is 3.0373). How much would be the recognized franchise revenue if the down payment is nonrefundable, collection of the note is reasonably assured, and the franchiser has performed substantially all of the services required by the initial fee?

Select one:

a. P91,119

b. P75,000

c. P-0-

d. P166,119

Answer 1

When services are substantially provided and collection of revenue is assured ,revenue should be recognized whether cash is received or not.

So Franchise revenue is equals to Down payment plus present value of annual payment

                         = 75000 +[3.0373*30000]

                          = 75000+ 91119

                          = $ 166119

correct option is "d"-166119