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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 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?
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