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58. XYZ is a calendar-year corporation that began business on January 1, 2018. For 2019, it reported the following information in its current-year audited income
58. XYZ is a calendar-year corporation that began business on January 1, 2018. For 2019, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below. Required: Identify the book-to-tax adjustments for XYZ. a) Reconcile book income to taxable income and identify each book-tax difference as temporary or permanent. b) Compute XYZ's income tax liability. c) Complete XYZ's Schedule M-1. d) Complete XYZ's Form 1120, page 1 (use the most current form available). Ignore estimated tax penalties when completing this form. e) Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties (see estimated tax information below). XYZ Corp. Income Statement for Current Year Book to Tax Adjustments (D) CE Book Income Taxable income $ 40,000,000 27,000,000 $ 13,000,000 300.000 20.000 14,000 3.000 50.000 $ 13,369,000 Revenue from sales Cost of goods sold Gross profit Other Income: Income from investment in corporate stock Interest income Capital gains fosses) Gain or loss from disposition of foed 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) (1.350.000) 75,000 (22,000) 41,000) (1.400,000) (70,000 (500,000 (18,000) (30,000) 144,000) (140,000) $(11,390,000) $ 1,979,000 (720,000) $ 1,259,000 Notes 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 ako distributed a $200,000 dividend to XYZ 2. Of the $20,000 intarest Income $5.000 was from a City of Seattle bond issued in 2018 that was used to fund public activities, $7,000 was from a Tacoma City bond issued in 2017. $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 does not quality as 51221 gain 4. This includes total officer compensation of $2.500,000 in one oficer received more than $1,000,000 compensation 5. This amount is the portion of Incentivestock option compensation that was expensed during the year frecipients are officers 6.XYZ actually wrote off $27.000 of accounts receivable as uncollectible 7. Tax depreciation was $1.900.000 8. In the current year, XYZ did not make any actual payments on warrantiest provided to customers. 9. XYZ made $500,000 of cash contributions to qualified charties during the year 10. On July 1 of this year XYZ acquired the assots of another business. In the process it acquired $200.000 of goodwill At the end of the year XYZ wrote off $20,000 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 $480,000. For purposes of esti- mated tax liabilities, assume XYZ reported a tax liability of $800,000 in 2018. During 2019, XYZ determined its taxable income at the end of each of the four quarters as follows: Cumulative Taxable Income (Loss) Quarter-End First Second Third $ 350,000 800,000 1,000,000 Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations. 58. XYZ is a calendar-year corporation that began business on January 1, 2018. For 2019, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below. Required: Identify the book-to-tax adjustments for XYZ. a) Reconcile book income to taxable income and identify each book-tax difference as temporary or permanent. b) Compute XYZ's income tax liability. c) Complete XYZ's Schedule M-1. d) Complete XYZ's Form 1120, page 1 (use the most current form available). Ignore estimated tax penalties when completing this form. e) Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties (see estimated tax information below). XYZ Corp. Income Statement for Current Year Book to Tax Adjustments (D) CE Book Income Taxable income $ 40,000,000 27,000,000 $ 13,000,000 300.000 20.000 14,000 3.000 50.000 $ 13,369,000 Revenue from sales Cost of goods sold Gross profit Other Income: Income from investment in corporate stock Interest income Capital gains fosses) Gain or loss from disposition of foed 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) (1.350.000) 75,000 (22,000) 41,000) (1.400,000) (70,000 (500,000 (18,000) (30,000) 144,000) (140,000) $(11,390,000) $ 1,979,000 (720,000) $ 1,259,000 Notes 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 ako distributed a $200,000 dividend to XYZ 2. Of the $20,000 intarest Income $5.000 was from a City of Seattle bond issued in 2018 that was used to fund public activities, $7,000 was from a Tacoma City bond issued in 2017. $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 does not quality as 51221 gain 4. This includes total officer compensation of $2.500,000 in one oficer received more than $1,000,000 compensation 5. This amount is the portion of Incentivestock option compensation that was expensed during the year frecipients are officers 6.XYZ actually wrote off $27.000 of accounts receivable as uncollectible 7. Tax depreciation was $1.900.000 8. In the current year, XYZ did not make any actual payments on warrantiest provided to customers. 9. XYZ made $500,000 of cash contributions to qualified charties during the year 10. On July 1 of this year XYZ acquired the assots of another business. In the process it acquired $200.000 of goodwill At the end of the year XYZ wrote off $20,000 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 $480,000. For purposes of esti- mated tax liabilities, assume XYZ reported a tax liability of $800,000 in 2018. During 2019, XYZ determined its taxable income at the end of each of the four quarters as follows: Cumulative Taxable Income (Loss) Quarter-End First Second Third $ 350,000 800,000 1,000,000 Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations
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