Question

Bill Amends, owner of Sarasota Estate Inc., buys and sells commercial properties. Recently, he sold land for $3,070,000 to the Blackhawk Group, a developer that plans to build a new shopping mall. In addition to the $3,070,000 sales price, Blackhawk Group agrees to pay Sarasota Estate Inc. 1% of the retail sales of the mall for 10 years. Blackhawk estimates that retail sales in a typical mall project is $1,090,000 a year. Given the substantial increase in online sales that are occurring in the retail market, Bill had originally indicated that he would prefer a higher price for the land instead of the 1% royalty arrangement and suggested a price of $3,329,000. However, Blackhawk would not agree to those terms.

What is the transaction price for the land and related royalty payment that Sarasota Estate Inc. should record?

Answer 1

Transaction price is $3,070,000.

Land	$3,070,000
Royalty	$0

Explanation:-

• Transaction fixed and certain price in which a transaction is made.
• The certain price is $3,070,000 only, since this is the definite selling price.
• 1% commission should not be considered here, because it is based on sales and the sale-figure may change in future.
• therefore, the amount of commission is not sure.