Question

Sweet Acacia Ltd., an equipment manufacturer, sold and delivered a piece of equipment to a buyer for $92,000, with 50% payable in one year and the remaining 50% payable in two years from the date of sale. Sweet Acacia estimates that the interest rate for a similar financing arrangement would be 12%. Calculate the amount of revenue that Sweet Acacia should recognize on the date of sale. (Round discount factor to 5 decimals and final answer to 2 decimal places, e.g. 5,275.25.)

Click here to view the factor table PRESENT VALUE OF 1.

Revenue to be recognized on the date of sale: $____________

Answer 1

Given information -
sale price of equipment =	$92,000
50% amount receivable in one year	$46,000
50% amount receivable in two years	$46,000
Interest rate for similar financing arrangement =	12%
Revenue that Sweet Acacia Ltd. Shall recognize today (i.e on the date of sale) is the present value of all future installments receivable ($46,000 +$46,000). Present value shall be computed considering 12% rate of interest.
Present value of 1 at 12% rate of interest is as below
Year 1	0.892857
Year 2	0.797194
Revenue to be recognized on the date of sale is as computed below -
= (46,000* 0.892857) + (46,000*0.797194)
= $ 77,742.3