4 Part 4 of 5 Required information (The following information applies to the questions displayed below.) XYZ is a calendar-year corporation that began business on January 1, 2020. For the year, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below. Use Exhibit 16-6. 10 points XYZ corp. Income statement For current year Book Income $ 40,000,000 (27,000,000) $ 13,000,000 Revenue from sales Cost of Goods Sold Gross profit eBook Print References 300,0001 20,0002 (4,000) 3,0003 50,000 $ 13,369,000 Other income: Income from investment in corporate stock Interest income Capital gains (losses) Gain or loss from disposition of fixed assets Miscellaneous income Gross Income Expenses : Compensation Stock option compensation Advertising Repairs and Maintenance Rent Bad Debt expense Depreciation Warranty expenses Charitable donations Meals Goodwill impairment Organizational expenditures other expenses Total expenses Income before taxes Provision for income taxes Net Income after taxes (7,500,000) (200,000,5 (1,350,000) (75,000) (22,000) (41,000,6 (1,400,000,7 (70,000,8 (500,000) (18,000) (30,000,10 (44,000,11 (140,000,1 12 $(11,390,000) $ 1,979,000 (400,000, 13 $ 1,579,000 1. XYZ owns 30 percent of the outstanding Hobble Corp. (HC) stock. Hobble Corp. reported $1,000,000 of income for the year. XYZ accounted for its investment in HC under the equity method, and it recorded its pro rata share of HC's earnings for the year. HC also distributed a $200,000 dividend to XYZ. 2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond, $7,000 was from a Tacoma City bond, $6,000 was from a fully taxable corporate bond, and the remaining $2,000 was from a money market account 3. This gain is from equipment that XYZ purchased in February and sold in December (i.e., it does not qualify as $1231 gain). 4. This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation). 5. This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers). 6.XYZ actually wrote off $27,000 of its accounts receivable as uncollectible. 7. Tax depreciation was $1,900,000. 8. In the current year, XYZ did not make any actual payments on warranties it provided to customers. 9. XYZ made $500,000 of cash contributions to qualified charities during the year. 10. On July 1 of this year XYZ acquired the assets of another business. In the process, it acquired $300,000 of goodwill. At the end of the year, XYZ wrote off $30,000 of the goodwill as impaired. 11. XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes. 12. The other expenses do not contain any items with book-tax differences. 13. This is an estimated tax provision (federal tax expense) for the year. Assume that XYZ is not subject to state income taxes. Estimated tax information: XYZ made four equal estimated tax payments totaling $360,000 ($90,000 per quarter). For purposes of estimated tax liabilities, assume XYZ was in existence in 2019 and that in 2019 it reported a tax liability of $500,000. During 2020, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end First Second Third Cumulative taxable income (loss) $ 400,000 $1,100,000 $1,400,000 Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) 1. Complete XYZ's Form 1120, page 1 Input all the values as positive numbers. Use 2020 tax rules regardless of year on tax form.) 1120 PG 1 2019 1b 6 Form 1120 U.S. Corporation Income Tax Return OMB No. 1545-0123 Department of the Treasury For calendar year 2019 or tax year beginning 2019, ending 20 Internal Revenue Service Go to www.irs.gov/Form 1120 for instructions and the latest information A Check if: Name B Employer identification number 1a Consolidated return (attach Form 851) TYPE XYZ Corporation b Lifeonlife consolidated retum OR Number, street, and room or suite no. If a P.O. box, see instructions. C Date Incorporated (mm/dd/yy) 2 Personal holding co. (attach Sch.PH) PRINT 3 Personal service corp. (see Instructions) City or town, state or province, country, and ZIP or foreign postal code D Total assets (see instructions) 4 Schedule M-3 attached E Check if: (1) Initial retum (2) Final return (3) Name change (4) Address change 1a Gross receipts or sales 1a 40,000,000 b Returns and allowances 0 c Balance. Subtract line 1b from line 1a 1c 40,000,000 2 Cost of goods sold (attach Form 1125-A) 2 27,000,000 3 Gross profit. Subtract line 2 from line 1c 3 13,000,000 14 Dividends and inclusions (Schedule C, line 23) 200,000 Income 5 Interest 5 8,000 6 Gross rents 7 Gross royalties 7 8 Capital gain net income (attach Schedule D (Form 1120)) 8 9 Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) 3,000 10 Other income (see instructions-attach statement) 10 50,000 11 Total income. Add lines 3 through 10 11 13,261,000 12 Compensation of officers (see instructions-attach Form 1125-E) 12 2,500,000 13 Salaries and wages (less employement credits) 13 5,000,000 14 Repairs and maintenance 14 75,000 15 Bad debts 15 27,000 16 Rents 16 22,000 17 Taxes and licenses 17 18 Interest (see Instructions) 18 Deductions 19 Charitable contributions 19 222,040 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on retum (attach Form 4562) 20 1,900,000 instructions 21 Depletion 21 for limitations 22 Advertising 22 1,350,000 on | 23 Pension, profit-sharing, etc., plans 23 deductions.) 24 Employee benefit programs 24 25 Reserved for future use 25 26 Other deductions (attach statement) 26 166,600 27 Total deductions. Add lines 12 through 26 27 11,262,640 19 Townhlo Inom 9 (See onorntimo 20 inneren 296 for limitations 22 Advertising 22 1,350,000 on 23 Pension, profit-sharing, etc., plans 23 deductions.) 24 Employee benefit programs 24 25 Reserved for future use 25 | 26 Other deductions (attach statement) 26 166,600 27 Total deductions. Add lines 12 through 26 27 11,262,640 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 28 1,998,360 29a Net operating loss deduction (see instructions) 29a Special deductions (Schedule C, line 24) 130,000 C Add lines 29a and 29b 29c 130,000 30 Taxable income. Subtract line 29c from line 28. see instructions 30 1,868,360 31 Total tax (Schedule J. Part 1, line 11) 31 392,356 Tax, 32 2019 net 965 tax liability paid (Schedule J. Part II, line 12) 32 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part II, line 23) 33 Refundable 34 Estimated tax penalty. See Instructions. Check if Form 2220 is attached 34 Credits, and 35 Amount owed. If line 33 is smaller than the total of lines 31, 32 and 34. enter amount owed 35 Payments 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want: Credited to 2020 estimated tax Refunded 37 Under penalties of perjury, I declare that I have examined this retum, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. May the IRS discuss this retum with Sign the preparer shown below? See instructions Here Signature of officer Date Title Yes No Print/Type preparer's name Preparer's signature Date Paid Check if self- employed? Firm's name Preparer Firm's EIN Use Only Firm's address Phone no For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 114500 Form 1120 (2019) THIS FORM IS A SIMULATION OF AN OFFICIAL TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2020 McGraw-Hill Education. PTIN 1120 PG 1 nex 4 Part 4 of 5 Required information (The following information applies to the questions displayed below.) XYZ is a calendar-year corporation that began business on January 1, 2020. For the year, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below. Use Exhibit 16-6. 10 points XYZ corp. Income statement For current year Book Income $ 40,000,000 (27,000,000) $ 13,000,000 Revenue from sales Cost of Goods Sold Gross profit eBook Print References 300,0001 20,0002 (4,000) 3,0003 50,000 $ 13,369,000 Other income: Income from investment in corporate stock Interest income Capital gains (losses) Gain or loss from disposition of fixed assets Miscellaneous income Gross Income Expenses : Compensation Stock option compensation Advertising Repairs and Maintenance Rent Bad Debt expense Depreciation Warranty expenses Charitable donations Meals Goodwill impairment Organizational expenditures other expenses Total expenses Income before taxes Provision for income taxes Net Income after taxes (7,500,000) (200,000,5 (1,350,000) (75,000) (22,000) (41,000,6 (1,400,000,7 (70,000,8 (500,000) (18,000) (30,000,10 (44,000,11 (140,000,1 12 $(11,390,000) $ 1,979,000 (400,000, 13 $ 1,579,000 1. XYZ owns 30 percent of the outstanding Hobble Corp. (HC) stock. Hobble Corp. reported $1,000,000 of income for the year. XYZ accounted for its investment in HC under the equity method, and it recorded its pro rata share of HC's earnings for the year. HC also distributed a $200,000 dividend to XYZ. 2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond, $7,000 was from a Tacoma City bond, $6,000 was from a fully taxable corporate bond, and the remaining $2,000 was from a money market account 3. This gain is from equipment that XYZ purchased in February and sold in December (i.e., it does not qualify as $1231 gain). 4. This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation). 5. This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers). 6.XYZ actually wrote off $27,000 of its accounts receivable as uncollectible. 7. Tax depreciation was $1,900,000. 8. In the current year, XYZ did not make any actual payments on warranties it provided to customers. 9. XYZ made $500,000 of cash contributions to qualified charities during the year. 10. On July 1 of this year XYZ acquired the assets of another business. In the process, it acquired $300,000 of goodwill. At the end of the year, XYZ wrote off $30,000 of the goodwill as impaired. 11. XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes. 12. The other expenses do not contain any items with book-tax differences. 13. This is an estimated tax provision (federal tax expense) for the year. Assume that XYZ is not subject to state income taxes. Estimated tax information: XYZ made four equal estimated tax payments totaling $360,000 ($90,000 per quarter). For purposes of estimated tax liabilities, assume XYZ was in existence in 2019 and that in 2019 it reported a tax liability of $500,000. During 2020, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end First Second Third Cumulative taxable income (loss) $ 400,000 $1,100,000 $1,400,000 Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) 1. Complete XYZ's Form 1120, page 1 Input all the values as positive numbers. Use 2020 tax rules regardless of year on tax form.) 1120 PG 1 2019 1b 6 Form 1120 U.S. Corporation Income Tax Return OMB No. 1545-0123 Department of the Treasury For calendar year 2019 or tax year beginning 2019, ending 20 Internal Revenue Service Go to www.irs.gov/Form 1120 for instructions and the latest information A Check if: Name B Employer identification number 1a Consolidated return (attach Form 851) TYPE XYZ Corporation b Lifeonlife consolidated retum OR Number, street, and room or suite no. If a P.O. box, see instructions. C Date Incorporated (mm/dd/yy) 2 Personal holding co. (attach Sch.PH) PRINT 3 Personal service corp. (see Instructions) City or town, state or province, country, and ZIP or foreign postal code D Total assets (see instructions) 4 Schedule M-3 attached E Check if: (1) Initial retum (2) Final return (3) Name change (4) Address change 1a Gross receipts or sales 1a 40,000,000 b Returns and allowances 0 c Balance. Subtract line 1b from line 1a 1c 40,000,000 2 Cost of goods sold (attach Form 1125-A) 2 27,000,000 3 Gross profit. Subtract line 2 from line 1c 3 13,000,000 14 Dividends and inclusions (Schedule C, line 23) 200,000 Income 5 Interest 5 8,000 6 Gross rents 7 Gross royalties 7 8 Capital gain net income (attach Schedule D (Form 1120)) 8 9 Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) 3,000 10 Other income (see instructions-attach statement) 10 50,000 11 Total income. Add lines 3 through 10 11 13,261,000 12 Compensation of officers (see instructions-attach Form 1125-E) 12 2,500,000 13 Salaries and wages (less employement credits) 13 5,000,000 14 Repairs and maintenance 14 75,000 15 Bad debts 15 27,000 16 Rents 16 22,000 17 Taxes and licenses 17 18 Interest (see Instructions) 18 Deductions 19 Charitable contributions 19 222,040 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on retum (attach Form 4562) 20 1,900,000 instructions 21 Depletion 21 for limitations 22 Advertising 22 1,350,000 on | 23 Pension, profit-sharing, etc., plans 23 deductions.) 24 Employee benefit programs 24 25 Reserved for future use 25 26 Other deductions (attach statement) 26 166,600 27 Total deductions. Add lines 12 through 26 27 11,262,640 19 Townhlo Inom 9 (See onorntimo 20 inneren 296 for limitations 22 Advertising 22 1,350,000 on 23 Pension, profit-sharing, etc., plans 23 deductions.) 24 Employee benefit programs 24 25 Reserved for future use 25 | 26 Other deductions (attach statement) 26 166,600 27 Total deductions. Add lines 12 through 26 27 11,262,640 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 28 1,998,360 29a Net operating loss deduction (see instructions) 29a Special deductions (Schedule C, line 24) 130,000 C Add lines 29a and 29b 29c 130,000 30 Taxable income. Subtract line 29c from line 28. see instructions 30 1,868,360 31 Total tax (Schedule J. Part 1, line 11) 31 392,356 Tax, 32 2019 net 965 tax liability paid (Schedule J. Part II, line 12) 32 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part II, line 23) 33 Refundable 34 Estimated tax penalty. See Instructions. Check if Form 2220 is attached 34 Credits, and 35 Amount owed. If line 33 is smaller than the total of lines 31, 32 and 34. enter amount owed 35 Payments 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want: Credited to 2020 estimated tax Refunded 37 Under penalties of perjury, I declare that I have examined this retum, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. May the IRS discuss this retum with Sign the preparer shown below? See instructions Here Signature of officer Date Title Yes No Print/Type preparer's name Preparer's signature Date Paid Check if self- employed? Firm's name Preparer Firm's EIN Use Only Firm's address Phone no For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 114500 Form 1120 (2019) THIS FORM IS A SIMULATION OF AN OFFICIAL TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2020 McGraw-Hill Education. PTIN 1120 PG 1 nex