The Numo Company, which was acquired (and renamed) in 2003 by E. R. Numo, sells frigets to multinational firms. In 2017 a venture capital firm provided additional funding in order to allow the company to expand operations. The following information was taken from the preliminary trial balance of Numo Company, a calendar year company, on December 31, 2017:

Cash

76,000

Accounts Receivable

60,000

Allowance for Doubtful Accounts

0

Inventory

90,000

Supplies on Hand

4,000

Transportation Equipment

203,000

Accumulated Depreciation - Transportation Equipment

68,000

Goodwill

160,000

Accounts Payable

26,000

Deferred Tax Liability - Depreciation

6,000

Common Stock, $2 par

122,000

Paid-in Capital in Excess of Par Value

81,000

Retained Earnings, 1/1/17

80,000

Sales

508,000

Salaries/Compensation Expense

88,000

Cost of Goods Sold

180,000

Supplies Expense

17,000

Depreciation Expense - Transportation Equipment

22,000

Municipal Bond Interest

9,000

However, the bookkeeping staff has NOT recorded the following transactions and adjustments because they were unsure about the appropriate accounting treatment:

(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:

Record Income tax Expense for 2017. The tax rate is 25% for all years. You have learned that the company's interest revenue is tax-exempt since it was earned on municipal bonds. In addition to the temporary differences described above, you have identified that a temporary difference exists for depreciation.As of 12/31/2016, there is a cumulative difference between "tax depreciation and "financial statement depreciation" that amounts to $24,000.The appropriate DTL has been recorded for this as of 12/31/2016.In 2017, tax depreciation was $28,000 and book depreciation (already recorded - see trial balance) was $22,000.You may assume that all deferred tax assets, if any, will be realized.