The note payable relating to the June 2, and 10 transactions is a five-year note

Question

The note payable relating to the June 2, and 10 transactions is a five-year note, with interest at the rate of 12 percent annually. Interest expense should be computed based on a 360 day year. IMPORTANT NOTE: The original note on the computer equipment purchased on June 2 was $112,000. On June 10, eight days later, S21,500 was repaid. Interest expense must be calculated on the SI 12,000 for eight days. In addition, interest expense on the $90,500 balance of the loan ($112,000 less $21,500 = $90,500) must be calculated for the 20 days remaining in the month of June.] Income taxes arc to be computed at the rate of 25 percent of net income before taxes. IMPORTANT NOTE: Since the income taxes arc a percent of the net income you will want to prepare (the Income Statements through the Net Income Before Tax line. The worksheet contains all of the (accounts and their balances which you can then transfer to t Close the revenue accounts Close the expense accounts. Close the income summary account.

Explanation / Answer

relating to the june 2 and 10 transactions is a five year note

June 2
Debit Computer Equipment $140,000
Credit Cash $28,000
Credit Notes Payable $112,000

June 10
Debit Notes Payable $21,500
Credit Cash $21,500

Edited to add:
Interest Expense recorded on December 31 would be
$112,000 x 12% x 8/360 = $ 298.67
Plus ($112,000 - $21,500 paid) x 12% x 200/360 = $6,033.33
Total $6,332.00

June 2 - June 10 is 8 days
July - December is 180 days plus 20 days in June = 200 days

combuted the rate of 25 percent of net income before taxes

Net Income before tax = 7850.41

So Tax (50%) = 7850.41 * 50/100 = 3931.32

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