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?

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?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 61P

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Question

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.

What is the transaction price?
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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Solved in 2 steps

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