Assume Royal Palm Corp., an equipment distributor, sells a piece of machinery with a list price of $600,000 to Arch Inc. Arch Inc. will pay $650,000 in one year. Royal Palm Corp. normally sells this type of equipment for 90% of list price. How much should be recorded as revenue?

Question

Quizplus · Accepted Answer

Revenue should be recorded at the amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In this case, Royal Palm Corp. normally sells this type of equipment for 90% of the list price, which is $600,000 * 90% = $540,000. The fact that Arch Inc. will pay $650,000 in one year includes an interest component and does not affect the revenue recognition amount for the sale of the machinery.