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Problem I

1. Jollibee recognizes revenue of 840,000 after substantially performing services, the refund period expiring, and assured collectibility of notes receivable. 2. Jollibee does not recognize revenue and instead recognizes an 840,000 unearned franchise revenue liability after performing services but before the refund period expires or notes collectibility is assured. 3. Jollibee does not recognize revenue and instead recognizes an 840,000 unearned franchise revenue liability after performing services when the refund period has not expired, even if notes collectibility is assured.

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59 views3 pages

Problem I

1. Jollibee recognizes revenue of 840,000 after substantially performing services, the refund period expiring, and assured collectibility of notes receivable. 2. Jollibee does not recognize revenue and instead recognizes an 840,000 unearned franchise revenue liability after performing services but before the refund period expires or notes collectibility is assured. 3. Jollibee does not recognize revenue and instead recognizes an 840,000 unearned franchise revenue liability after performing services when the refund period has not expired, even if notes collectibility is assured.

Uploaded by

Elaine Yap
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 9

Problem I
1. Jollibee has substantially performed all material services, the refund period has
expired, and the collectibility of the note is reasonably assured. Jollibee
recognizes revenue as follows:

Cash……….. 240,000
Notes receivable……………. 600,000
Franchise revenue…………………….. 840,000

2. The refund period has expired and the collectibility of the note is
reasonably assured, but Jollibee has not substantially performed all
material services. Jollibee does not recognize revenue, but instead
recognizes a liability as follows:

Cash……….. 240,000
Notes receivable……………. 600,000
Unearned franchise revenue…………………….. 840,000

Franchisor will recognize the unearned franchise fees as revenue when it has
performed all material services, the adjusting entry to record the revenue then
would be:

Unearned franchise revenue……………………... 840,000


Franchise revenue….……. 840,000

3. Jollibee has substantially performed all services and the collectibility of the
note is reasonably assured, but the refund period has not expired.
Jollibee does not recognize revenue, but instead recognizes a liability as follows:

Cash……….. 240,000
Notes receivable……………. 600,000
Unearned franchise revenue…………………….. 840,000

The franchisor will recognize the unearned franchise fees as revenue when
the refund period expires, the adjusting entry to record the revenue then would
be:

Unearned franchise revenue……………………... 840,000


Franchise revenue….……………………………….. 840,000

4. Jollibee has substantially performed all services and the refund period has
expired, but the collectibility of the note is not reasonably assured. Jollibee
recognizes revenue by the installment or cost recovery method. If we assume
that Jollibee uses the installment method, it recognizes revenue of P240,000 as
follows:

Cash……….. 240,000
Notes receivable……………. 600,000
Franchise revenue…………………….. 240,000
Unearned franchise revenue…………… 600,000

The franchisor is using the installment method, it recognizes the unearned


franchise fees as revenue in the amount of P120,000 each year as it receives
cash assuming there is no cost of franchise, the entry would be as follows:
Unearned franchise revenue…………… 120,000
Franchise revenue…………………….. 120,000

This revenue recognition may be true only in the event there is no cost of
franchise at all. On the other hand, it may be somewhat misleading since under
the installment sales method; gross profit is earned or realized thru collections.

5. The refund period has expired, but Jollibee has not substantially
performed all services and there is no basis for estimating the collectibility of
the note. Jollibee does not recognize the note as an asset. Instead, it uses a
form ·of the deposit method. For example, suppose Jollibee has developed
an entirely new product whose success is uncertain and the franchisee
will pay the note from the cash flows from the sale of the product, if
any. Jollibee records the initial transaction as follows:

Cash……….. 240,000
Unearned franchise revenue…………………….. 240,000

The franchisor may recognize the unearned franchise fees as revenue


under the accrual method in the normal manner at the completion of
the services to be performed (if collectibility is reasonably assured), the
adjusting entry to record the revenue then would be:

Unearned franchise revenue……………………... 240,000


Franchise revenue….……………………………….. 240,000

Alternatively, it may recognize revenue under the installment method if it has no


basis for estimating the collectibility of the note.

6. Now assume that Jollibee has earned only P360,000 from providing
initial services, with the balance being a down payment for continuing
services. If the refund period has expired and the collectibility of the note is
reasonably assured, Jollibee recognizes revenue of P360,000 as follows:
Cash……….. 240,000
Notes receivable……………. 600,000
Franchise revenue…………………….. 360,000
Unearned franchise revenue………….. 480,000

The franchisor recognizes the unearned franchise revenue of P480,000 as revenue

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