Folio Corp

Multiple Choice

Folio Corp. Folio Corp. sold a paper machine to Library Inc. on January 1, 2007. The sale price of the machine was $4,000,000 and the machine cost $3,200,000 for Folio to manufacture. Library will make four payments at the end of each year, beginning with 2007, 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 Folio Corp. is certain that it will collect all four payments from Library Inc. what amount of gross profit should Folio recognize in 2007 from the sale?

A) $0
B) $861,883
C) $172,377
D) $800,000