On January 1, 20X1, Company ABC started operations. The company acquired a piece of equipment by issuing
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Question:
On January 1, 20X1, Company ABC started operations. The company acquired a piece of equipment by issuing a note payable on that date. The note had a below market rate of interest.
Terms of the purchase of the equipment:
Coupon rate | Market rate | ||
Note payable | $852,000 | 1.30% | 6.25% |
Note term | 5 years |
The note is due in equal annual payments of principle and interest.
The company uses straight-line depreciation for book purposes.
Depreciation information on the equipment:
Useful life of the equipment, no salvage | 10 years |
20X1 Tax depreciation | $100,000 |
Tax rate | 21% |
The accountant ignored market rate when producing the below income statement.
Income Statement for the year ended December 31, 20X1
Sales | $1,435,800 |
Expenses | 1,206,000 |
Depreciation expense | 85,200 |
Interest expense | 11,076 |
Pretax income | 133,524 |
Tax expense | 28,040 |
Net income | $105,484 |
What is the correct net income for 20X1?
Related Book For
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker
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