mith Corp. sells goods to Magnus for $500,000, payment due in 18 months after the goods are delivered to Magnus.  The related interest is $36,000.  What is the transaction price? Will Smith recognize interest expense or interest income for this transaction?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Smith Corp. sells goods to Magnus for $500,000, payment due in 18 months after the goods are delivered to Magnus.  The related interest is $36,000. 

  1. What is the transaction price?
  2. Will Smith recognize interest expense or interest income for this transaction? 

 

Expert Solution
Step 1

Sales means the amount recorded in books as revenue earned by selling the goods or services. Account receivables means the amount due from customers.

Since the amount due from customer in this question is after 18 months , hence, interest portion in sales should be calculated.

 

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