Question

Bill Amends, owner of Real Estate Inc., buys and sells commercial properties. Recently, he sold land for $3,000,000 to the Blackhawk Group, a developer that plans to build a new shopping mall. In addition to the $3,000,000 sales price, Blackhawk Group agrees to pay Real Estate Inc. 1% of the retail sales of the mall for 10 years. Blackhawk estimates that retail sales in a typical mall project is $1,000,000 a year. Given the substantial increase in online sales that are occurring in the retail market, Bill had originally indicated that he would prefer a higher price for the land instead of the 1% future sales-based arrangement and suggested a price of $3,250,000. However, Blackhawk would not agree to those terms. What is the transaction price for the land and related royalty payment that Indigo Estate Inc. should record?

Answer 1

$3,000,000

Step-by-step explanation:

Land = $3,000,000

Royalty = $0

Total Transaction price is $3,000,000

As transaction price is fixed and certain price in which a transaction is made, we will record this only. So $3,000,000 is certain price as that is a definate price so it will be recorded. 1% royalty per year for 10 years should not be recorded as it is not certain that the revenue will be generated or not.