Facts: On January $1,$ Year $5,$ SDF sold furniture to a customer for $$4,000$ with three years' interest$-$free credit. The customer took delivery of the furniture on that day. The $$4,000$ is payable to SDF on December $31,$ Year $7.$ The applicable discount rate based on the customer's credit profile is B percent.

Required: Determine the transaction price for the sale of furniture.

Solution: The transaction price is $$3,175($$$4,000\frac{1}{(1\mathrm{.}08{)}^3})$ because the time value of money must be considered when determining the transaction price.

Note that interest income will also be recognized each year as follows: