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 uncertain that it will collect all four payments from Ranger Inc.and uses the cost recovery method of accounting for revenue recognition 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 uncertain that it will collect all four payments from Ranger Inc.and uses the cost recovery method of accounting for revenue recognition 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

No gross profit until cost is recovered.

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