Question

Assume Royal Palm Corp., an equipment distributor, sells a piece of machinery with a list price of $900,000 to Arch Inc. Arch Inc. will pay $975,000 in one year. Royal Palm Corp. normally sells this type of equipment for 90% of list price. How much should be recorded as revenue?

a. $810,000.
b. $877,500.
c. $900,000.
d. $975,000.

Answer 1

The amount that should be recorded as revenue is $975,000.

Step-by-step explanation:

To determine the amount that should be recorded as revenue, we need to consider the list price and the actual price at which the equipment is sold. Royal Palm Corp. normally sells this type of equipment for 90% of the list price, which in this case would be 90% of $900,000, or $810,000. However, in this particular transaction, Arch Inc. is paying $975,000. Since the actual price is higher than the normal selling price, the amount recorded as revenue will be the actual price paid by Arch Inc., which is $975,000.