Comfort Furniture sells household furniture. Customers can pay for the furniture at the time of delivery or they can wait one year to make payment. In the latter case, the customer must pay for the retail price of the furniture plus an additional 16 percent. If the customer decides to pay after one year, should Comfort Furniture report the additional 16 percent as part of the revenue from selling the furniture or should it be reported separately

Yes, Comfort Furniture should report the additional 16 percent as part of the revenue from selling the furniture.

Explanation:

The 16 percent is an example of a sales discount that is stated indirectly.

A sales discount can be described as the percentage reduction in the price of a commodity that is enjoyed by customers when they pay early.

For example, if the retail price is $100, the customer will pay $116 (i.e. 100 * 116%) If the customer decides to pay after one year.

The direct discount rate on the $116 can be calculated from the example as follows:

Discount rate = (Additional 16 percent / (100% + Additional 16 percent)) * 100 = (16% / (100% + 16%)) * 100 = 14%

Based on this explanation, the total revenue if the customer decides to pay after one year is therefore  the sum of the retail and the additional 16 percent.

Therefore, Comfort Furniture should report the additional 16 percent as part of the revenue from selling the furniture.

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