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Calculate the net income reported by MANUNGGAY BAKERY

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    Assignment ID: FG133134258

    Question – On January 2, 2016, SUSIE FOODS signed an agreement to operate as a franchise of MANUNGGAY BAKERY for an initial franchise fee of 2,812,500 for 10 years. Of this amount, 525,000 was paid when the agreement was signed and the balance payable in our annual payments beginning on December 31, 2016. SUSIE FOODS issued a promissory note for the balance, the relevant interest rate being 24%. Assume that substantial services amounting to 417,450 had already been rendered by MANUNGGAY BAKERY and that additional indirect franchise cost of 70,500 was also incurred. The franchisee started operations during 2016 with a total sale of 450,000. The agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of its gross sales. If needed, the PV factor is 2.40. Assuming the note is non-interest-bearing and its collection is reasonably assured, calculate the net income reported by MANUNGGAY BAKERY on the SUSIE franchise for the year ended December 31, 2016.

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