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28-02-2020
Business

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Bill Amends, owner of Indigo Estate Inc., buys and sells commercial properties. Recently, he sold land for $3,110,000 to the Blackhawk Group, a developer that plans to build a new shopping mall. In addition to the $3,110,000 sales price, Blackhawk Group agrees to pay Indigo Estate Inc. 1% of the retail sales of the mall for 10 years. Blackhawk estimates that retail sales in a typical mall project is $1,060,000 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% royalty arrangement and suggested a price of $3,385,000. 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?

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28-02-2020

Answer:

$3,110,000

Explanation:

Transaction price is a fixed and certain price in which a transaction is made. Here the certain price is $3,110,000 only, since this is the definite selling price. 1% commission should not be considered here, because it is based on sales and the sale-figure may change in future. Therefore, the amount of commission is not sure.

Transaction price is $3,110,000

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