On May 31, 2015, Namaka Ltd. (Namaka) sold specialized heavy equipment to Audy Inc. (Audy) for \($25,000,000\). The sale agreement required that Audy pay \($7,000,000\) to Namaka on May 31, 2015, and then \($6,000,000\) on each of May 31, 2016, 2017, and 2018. Namaka decided to recognize the sale of the equipment in the year ended May 31, 2015.

Required:

a. How much revenue should Namaka recognize as a result of its sale of the office building to Audy? Prepare the journal entry that Namaka should prepare to record the sale. Assume a discount rate of 14 percent.

b. How much interest revenue will be reported on Namaka’s income statement for the years ended May 31, 2016, 2017, and 2018, as a result of the sale to Audy?

Prepare the journal entry that should be prepared each year to record the interest revenue.

c. How much would be reported as receivable from Audy on Namaka’s balance sheet for the years ended May 31, 2015, 2016, 2017, and 2018? How would the receivable be classified on each year’s balance sheet? Explain your answer.

d. Suppose Namaka insisted on recognizing \($25,000,000\) as revenue in 2015. What would be the implications for stakeholders? Why might Namaka’s management want to report the full \($25,000,000\) immediately?