John William, owner of Crane Estate Inc., buys and sells commercial properties. Recently, he Group, a developer that plans to build a new shopping mall. In addition to the $3,270,000 sales price, Windsor Group agrees to pay Crane Estate Inc. 1% of the retail sales of the mall for 10 years. Windsor 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, John 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
John William, owner of Crane Estate Inc., buys and sells commercial properties. Recently, he Group, a developer that plans to build a new shopping mall. In addition to the $3,270,000 sales price, Windsor Group agrees to pay Crane Estate Inc. 1% of the retail sales of the mall for 10 years. Windsor 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, John 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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John William, owner of Crane Estate Inc., buys and sells commercial properties. Recently, he sold land for $3,270,000 to the Windsor
Group, a developer that plans to build a new shopping mall. In addition to the $3,270,000 sales price, Windsor Group agrees to pay
Crane Estate Inc. 1% of the retail sales of the mall for 10 years. Windsor 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, John 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
$3,496,000. However, Windsor would not agree to those terms.
What is the transaction price for the land and related royalty payment that Crane Estate Inc. should record?
Transaction price
$
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