Parnell Industries Parnell Industries sold a copy machine to Ranger Inc.on January 1,2012.The sale price of the machine was $4,000,000 and the machine cost $3,200,000 for Parnell to manufacture.Ranger will make four payments at the end of each year,beginning with 2012,of $1,261,883 each.The four payments of $1,261,883 when discounted at 10% have a present value of $4,000,000.An amortization table appears below:
If Parnell Industries is certain that it will collect all four payments from Ranger Inc.what amount of gross profit should Parnell recognize in 2012 from the sale?
A) $0
B) $861,883
C) $172,377
D) $800,000

Question

Parnell Industries Parnell Industries sold a copy machine to Ranger Inc.on January 1,2012.The sale price of the machine was $4,000,000 and the machine cost $3,200,000 for Parnell to manufacture.Ranger will make four payments at the end of each year,beginning with 2012,of $1,261,883 each.The four payments of $1,261,883 when discounted at 10% have a present value of $4,000,000.An amortization table appears below:
 If Parnell Industries is certain that it will collect all four payments from Ranger Inc.what amount of gross profit should Parnell recognize in 2012 from the sale?
A) $0 
B) $861,883 
C) $172,377 
D) $800,000

Quizplus · Accepted Answer

Parnell should recognize gross profit equal to the difference between the sale price and the cost of the machine, which is $4,000,000 - $3,200,000 = $800,000. Even though the payment will be made over four years, Parnell can recognize the full gross profit in the year of sale, as long as it is certain that all four payments will be collected.

Parnell Industries Parnell Industries Sold a Copy Machine to Ranger