On January 1, 20x1, Ai Inc. acquired all the assets and liabilities of Pon Corp. for P1,200,000. Pon Corpassets and liabilities have a fair value of P2,500,000 and P1,300,000, respectively. Additional Information: ● Ai is the exclusive distributor of Pon's products. The agreement has a remaining term of five years. The contract does not have any cancellation clause. ● The agreement has a fair value of P400,000, of which 30% is "at the market.” The off-market component is unfavorable to the Ai Inc. ● No assets and liabilities related to the contract were recognized. How much is the "gain of bargain purchase" to be recognized by Ai Inc. as a result of the business combination?
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On January 1, 20x1,
P1,200,000. Pon Corpassets and liabilities have a fair value of P2,500,000 and
P1,300,000, respectively.
Additional Information:
● Ai is the exclusive distributor of Pon's products. The agreement has a
remaining term of five years. The contract does not have any cancellation
clause.
● The agreement has a fair value of P400,000, of which 30% is "at the market.”
The off-market component is unfavorable to the Ai Inc.
● No assets and liabilities related to the contract were recognized.
How much is the "gain of bargain purchase" to be recognized by Ai Inc. as a result of
the business combination?
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- On January 1, 20x1, Native Co. enters into a contract to grant a franchisee the right to use Native's trade name and sell Native's products for 10 years. In addition, Native also promises to provide the equipment necessary to operate the franchise store. The contract states a fixed consideration of P450,000 and a 5% sales-based royalty. The fixed consideration includes P150,000 payment for the equipment. This reflects the stand-alone selling price of the equipment. Native Co., as a franchisor, has developed customary business practice to undertake activities such as analyzing the customer's changing preferences and implementing product improvements, pricing strategies, marketing campaigns and operational efficiencies to support the franchise name. Native delivers the equipment to the customer on February 1, 20x1. The customer commences business operations on March 1, 20x1, at which date the 10-year license period starts to run. The franchisee reports sales of P1,200,000 for the year.…Zimmern Machines sold equipment with a 10-year economic life to Bourdain Acres, while concurrently enteringinto an 8-year leaseback. Eight years is considered a major part of the economic life of the equipment. Thesale agreement contains no option for Zimmern to repurchase the equipment or any other provision that wouldprevent its sale. Can Zimmern Machines account for the transaction as a sale-leaseback? Why?On January 1, 2020, Perriman Company transferred equipment for cash and leased it back. As seller-lessee, Perriman retained the right to substantially all of the remaining use of the equipment. The term of the lease is 8 years. Instructions a. What is the major issue related to sale-leaseback accounting? b. 1. How should Perriman account for the sale portion of the sale-leaseback transaction at January 1, 2020? 2. How should Perriman account for the leaseback portion of the sale-leaseback transaction at January 1, 2020?
- On January 1, Hazard Company, a lessee, entered into three noncancelable leases for brand new general equipment: Lease J, Lease K, and Lease L. None of the three leases transfers ownership of the equipment to Hazard at the end of the lease term. For each of the three leases, the present value of the lease payments at the beginning of the lease term, excluding that portion of the payments representing executory costs, is 75% of the fair value of the equipment to the lessor at the inception of the lease. Each piece of equipment has an expected economic life of 5 years. The following information is peculiar to each lease: Lease J does not contain a bargain purchase option. The lease term is equal to 60% of the estimated economic life of the equipment. Lease K contains a bargain purchase option. The lease term is equal to 60% of the estimated economic life of the equipment. Lease L does not contain a bargain purchase option. The lease term is for 12 months. Required: Explain how…1. On December 1, 20x1, CANOROUS Co. granted a 5-year franchise right to MELODIOUS, Inc. for an initial franchisefee of ₱400,000 and a 10% sales-based royalty. The initial franchise fee is non-refundable and due upon signing ofthe contract. At contract inception, CANOROUS determines that the nature of its promise to grant the license is toprovide the customer with the right to access CANOROUS’s intellectual property as it exist throughout the licenseperiod. As of December 31, 20x1, CANOROUS has no remaining obligation or intent to refund any of the cashreceived, all the initial services necessary to setup the contract have been performed, and MELODIOUS startedoperating the franchised business. MELODIOUS reported sales of ₱800,000 for 20x1. How much revenue shallCANOROUS recognize in 20x1?On December 1, 20x1, CANOROUS Co. granted a 5-year franchise right to MELODIOUS, Inc. for an initial franchisefee of ₱400,000 and a 10% sales-based royalty. The initial franchise fee is non-refundable and due upon signing ofthe contract. At contract inception, CANOROUS determines that the nature of its promise to grant the license is toprovide the customer with the right to access CANOROUS’s intellectual property as it exist throughout the licenseperiod. As of December 31, 20x1, CANOROUS has no remaining obligation or intent to refund any of the cashreceived, all the initial services necessary to setup the contract have been performed, and MELODIOUS startedoperating the franchised business. MELODIOUS reported sales of ₱800,000 for 20x1. On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for a fixed fee of₱100,000 payable as follows: 20% is payable upon signing of contract. 80% is represented by a note receivable collectible in 4 equal…