Circuit Fitness (CF) sells customized exercise equipment to fitness centers. On September 1st, 2021, the sales manager for CF obtained a signed contract from Suburban Fitness Center (SFC) for all of the equipment for their new fitness center. The new fitness center is currently in the design stage and has a projected opening date of November 1, 2022. CF will deliver the equipment on October 1, 2022. The contract specifies that the SFC will pay $1,400,000 within 7 days of the contract being signed by both parties. SFC made the payment on September 5, 2021. The amount of interest on similar projects for this time period equates to $120,000. CF has significant experience in these types of transactions and
Circuit Fitness (CF) sells customized exercise equipment to fitness centers. On September 1st, 2021, the sales manager for CF obtained a signed contract from Suburban Fitness Center (SFC) for all of the equipment for their new fitness center. The new fitness center is currently in the design stage and has a projected opening date of November 1, 2022. CF will deliver the equipment on October 1, 2022.
The contract specifies that the SFC will pay $1,400,000 within 7 days of the contract being signed by both parties. SFC made the payment on September 5, 2021.
The amount of interest on similar projects for this time period equates to $120,000. CF has significant experience in these types of transactions and a significant revenue reversal is not expected to occur.
- Will the interest be incorporated into the transaction price (yes/no)
- If the interest is incorporated into the price will interest expense be recognized or interest income?
- What is the transaction price?
The question is related to Analysis of Business Transaction. In the given question it is mentioned that the complete payment as per contract signed by both the parties will be made within 7 days of the contract being signed by both parties. SFC made the payment on September 5, 2021. So there will be not question of interest as full payment of $1400000 is within the stipulated time as mentioned in the contract.
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