(1)On April 1, 2017, Numo issued a five-year, $400,000, non-interest bearing note to the venture capital firm and received $248,368 in cash, which reflects a 10% market yield. For financial statement purposes, interest expense is recognized using the effective interest rate method. However, for tax purposes, interest expense will be computed using the straight-line method.

HINT - In addition to the 4/1/17 transaction, be sure to record the required adjusting entry to record interest expense as of 12/31/17.Also, be sure to include this in your tax computations.

(2)In 2017, the company was accused of patent infringement. While the company is contesting the case, management believes that there is a probably loss of between $22,000 and $40,000. This loss has NOT been recorded

HINT - Record the appropriate loss. This accrued liability should be considered a current liability. Also, remember that the loss is not deductible for tax purposes until it is paid in the future.

(3)Numo has determined that supplies on hand at 12/31/17 amount to $1,300.You have also determined that Numo owes wages at 12/31/17 of $3,200 which have not yet been recorded.Neither of these two items will create difference between financial statements and the tax return.

(4)The company has not yet recorded the allowance for doubtful accounts for 2017.Based on experience, bad debt expense should be 2% of sales.Bad debt expense is not deductible for tax purposes until actual accounts are written off.There were no write-offs during 2017.

Required:

A.Record appropriate transactions and adjusting entries as described above.