Problem #3
Assume that the Jollibee Company sells a franchise that requires an initial franchise fee of P840,
000. A down payment of P240, 000 cash is required, with the balance covered by the issuance of
a P600,000. 10% note, payable by the franchisee in five equal annual instalments.
Required: Prepare entries on the books of franchisor Jollibee to record the following assuming:
a. Jollibee has substantially performed all material services, the refund period has
expired, and the collectability of the note is reasonably assured.
b. The refund period has expired and the collectability of the note is reasonably assured
but Jollibee has not substantially performed all material services.
c. Jollibee has substantially performed all services and the collectability of the note is
reasonably assured, but the refund period has not expired.
d. Jollibee has substantially performed all services and the refund period has expired,
but the collectability of the note is not reasonably assured. Jollibee recognizes
revenue by the instalment sales method.
e. The refund period has expired, but Jollibee has not substantially performed all
services and there is no basis for estimating the collectability of the note and the
recognition of the note as an asset is unwarranted.
f. 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 collectability of the note is reasonably assured.
ANSWER:
a. Jollibee has substantially performed all material services, the refund period has expired,
and the collectability of the note is reasonably assured
Cash 240,000
Notes Receivable 600,000
Revenue 840,000
b. The refund period has expired and the collectability of the note is reasonably assured
but Jollibee has not substantially performed all material services
Cash 240,000
Notes Receivable 600,000
Unearned Revenue 840,000
Adjusting entry:
Unearned Revenue 840,000
Revenue 840,000
c. Jollibee has substantially performed all services and the collectability of the note is
reasonably assured, but the refund period has not expired
Cash 240,000
Notes Receivable 600,000
Unearned Revenue 840,000
Adjusting entry:
Unearned Revenue 840,000
Revenue 840,000
d. Jollibee has substantially performed all services and the refund period has expired, but
the collectability of the note is not reasonably assured. Jollibee recognizes revenue by the
instalment sales method
Cash 240,000
Notes Receivable 600,000
Revenue 240,000
Unearned Revenue 600,000
e. The refund period has expired, but Jollibee has not substantially performed all services
and there is no basis for estimating the collectability of the note and the recognition of the
note as an asset is unwarranted
Cash 240,000
Unearned Revenue 240,000
Adjusting entry:
Unearned Revenue 240,000
Revenue 240,000
f. 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
Cash 240,000
Notes Receivable 600,000
Revenue 360,000
Unearned Revenue 480,000
Adjusting entry:
Unearned Revenue 480,000
Revenue 480,000
