Krawczyk Industrial sells equipment on an installment plan. On September 1, 2011, Krawczyk entered into an installment sale contract with Broadbent Boat Builders for a six-year period. Equal annual payments under the installment sale are $187,500 and are due on August 31 of each year beginning in 2012.
Additional information:
(a) The equipment sold to Broadbent cost Krawczyk $637,500.
(b) The implicit interest rate is 10%.
Compute the income or loss before taxes recorded by Krawczyk for the years ended December 31, 2011, and 2012,as a result of the above transaction, assuming that the installments are collected as due under the contract.
What would the income be if the situation would be reasonably assured and cannot be reasonably assured?