JM INC. franchisor, entered into franchise agreement with John Inc.

,
franchisee on July 1, 2016. The initial franchise fee agreed upon is P
5,950,000, of which P 1,050,000 is payable upon signing and the balance to
be covered by a non-interest bearing note (PV factor is 3.04) payable in four
equal annual instalments. It was agreed that the down payment is not
refundable, notwithstanding lack of substantial performance of services by
franchiser. The following expenses were incurred: Direct Cost: Initial services,
P 1,645,000 and continuing services, P 167,300. Indirect cost: Initial services,
P 448,000 and continuing services P 63,000. The management of John has
estimated that they can borrow loan at the rate of 12%. The franchisee
commenced its

operations on July 31, 2016. Continuing franchise fee is equal to 5% of its

monthly gross sale. JHON reported gross sales of P 6,650,000 for the month.
JM prepares its financial statements on August 31, 2016. Compute the net
income: (Two decimal)
1 The probability of collection is likely.
A.1,020,670
B. 2,875,680
C. 2,857,680
D. 0

2 The probability of collection is unlikely.

A 416,850
B 0
C 63,000
D 1,095,150

3 On December 31, 2015, Chow king signed an agreement authorizing King

Kong Company to operate as a franchise for an initial franchise fee of P
500,000. Of this amount, P 200,000 was received upon signing of the
agreement and the balance is due in three annual payment of P 100,000
each, beginning December 31, 2016. No future services are required to be
performed. King Kong Companys credit rating is such that collection of the
note is reasonably assured. The present value at December 31, 2018 of the
three annual payments discounted at 14% (the implicit rate of a loan of this
type) is P 232,200. On December 31, 2015, what amount should Chow king
record as earned franchise fees?
A 500,000
B 232,200
C 200,000
D 432,200

On January 1, 2016, Mr. Joven entered into a franchise agreement with Ong to
market their products. The agreement provides for an initial fee of
P12,500,000 payable as follows P3,500,000 upon signing of the contract and
the balance in five equal annual payments every end of the year starting
December 31, 2016. Mr Joven signs a non-interest bearing note for the
 balance. His credit rating indicates that he can borrow money at 15% interest
for a loan of this type. The present value of an annuity of P1 at 15% for 5
periods is 3.352. The agreement further provides that the franchisee must
pay a continuing franchise fee equal to 3% of the monthly gross sales. On
August 31, the franchiser completed the initial service required in the
contract at a cost of P4,290,120, and incurred indirect cost of 175,000. The
franchisee commenced business operations on November 30, 2016. The
gross sales reported to the franchiser were P1,800,000 for December 2016.
The first installment payment was made in due date.
4 Assume the collectability of the note is not reasonably assured, how much is
the net income for the year ended, December 31, 2016?
5 Assume the collectability of the note is reasonably certain, how much is the
net income for the year ended, December 31, 2016?
6 XY Inc., franchisor entered into franchise agreement with AB Inc., franchisee
on July 1, 2016. The initial franchisee fees agreed upon is P850,000, of which
150,000 is payable upon signing and the balance to be covered by a non-
interest bearing note payable in four equal annual installments. It was agreed
that the down payment is not refundable, notwithstanding lack of substantial
performance of services by franchiser. Probability of collection is unlikely.

The following expenses were incurred:

Initial Services:
Direct Cost: 235,000
Indirect Cost: 64,000
Continuing Services:
Direct Cost: 23,900
Indirect Cost: 9,000

The management of AB has estimated that they can borrow loan at the rate
of 12% (PV factor 3.04). The franchisee commenced its operations on July 31, 2016.
A continuing franchise fee equal to 5% of its monthly gross sales of 950,000 for the
month.
How much is the net income to be reported on August 31, 2016?
7 On August 1, 2016, SAM Inc. entered into a franchise agreement with SMITH
Franchisee. The initial franchise fee agreed upon is P246,900 of which 46,900
is payable upon signing and the balance to be covered by a non-interest
bearing note payable in four equal annual installments. The down payment is
refundable within 95 days. SMITH Inc. has a high credit rating; thus, collection
of the note is reasonably assured. Out of pocket cost of 125, 331 and 12,345
were incurred for direct expenses and indirect expenses respectively.
Prevailing market rate is 9%. PV factor is 3.2397.
How much revenue will the franchisor recognized on October 31, 2016?

8 Mike restaurant sold a fast food restaurant franchise to Irish. The sale
agreement, signed on January 2016 called for a P100,000 down payment plus
 two 50,000 annual payments representing the value of initial franchise
services rendered by Mike restaurant. In addition, the agreement required the
franchisee to pay 8% of its gross revenues to the franchisor. The restaurant
opened early in 2016 and its sales for the year amounted to 750,000. The
prevailing rate for similar note was 12% (PV factor was 1.6901).
How much is the total revenue for 2016?

9 On April 1, 2016, GOOD Inc. entered into a franchise agreement with BEST
Franchisee. The initial franchise fee agreed upon is P246,900 of which 46,900
is payable upon signing and the balance to be covered by a non-interest
bearing note payable in four equal annual installments. The down payment is
refundable within 100 days. BEST Inc. has a high credit rating; thus, collection
of the note is reasonably assured. Out of pocket cost of 125, 331 and 12,345
were incurred for direct expenses and indirect expenses respectively.
Prevailing market rate is 9%. PV factor is 3.2397.
For the fiscal year ended June 30, 2016, how much revenue from franchise
fee will the franchisor recognize?