Reference no: EM132707652

Monochrome Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monochrome receives P600,000 in exchange for satisfying the following separate performance obligations:

1. franchisees have a five-year right to operate as a Monochrome Muffler retail establishment in an exclusive sales territory.
2. franchisees receive initial training and certification as a Monochrome Mechanic, and
3. franchisees receive a Monochrome Muffler building and necessary equipment.

The stand-alone selling price of the initial training and certification is P15,000 and P450,000 for the building and equipment. Monochrome estimates the stand-alone selling price of the five- year right to operate as a Monochrome Muffler establishment using the residual approach. Monochrome received P 75,000 on July 1, 2019, from Pentagon and accepted a note receivable for the rest of the franchise price. Monochrome will construct and equip Pentagon's building and train and certify Pentagon by September 1, and Pentagon's five-year right to operate as a Monochrome Muffler establishment will commence on September 1 as well.

Required:

Question a. What amount would Monochrome calculate as the stand-alone selling price of the five-year right to operate as a Monochrome Muffler retail establishment?

Question b. What journal entry would Monochrome record on July 1, 2019, to reflect the sale of a franchise to Pentagon?

Question c. How much revenue would Monochrome recognize in the year ended December 31, 2019, with respect to its franchise arrangement with Perkins? (Ignore any interest on the note receivable.)