***PLEASE COMPLETE SCHEDULE L, M-1 & M-2******

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. Exhibit 16-6.

XYZ corp.Book

IncomeIncome statementFor current year

Revenue from sales$40,000,000

Cost of Goods Sold(27,000,000)

Gross profit$13,000,000

Other income:Income from investment in corporate stock300,000¹I

nterest income20,000²

Capital gains (losses)(4,000)

Gain or loss from disposition of fixed assets3,000³

Miscellaneous income50,000

Gross Income$13,369,000

Expenses:Compensation(7,500,000)⁴

STock option compensation(200,000)⁵

Advertising(1,350,000)

Repairs and Maintenance(75,000)

Rent(22,000)

Bad Debt expense(41,000)⁶

Depreciation(1,400,000)⁷

Warranty expenses(70,000)⁸

Charitable donations(500,000)⁹

Meals(18,000)

Goodwill impairment(30,000)¹⁰

Organizational expenditures(44,000)¹¹

Other expenses(140,000)¹²

Total expenses$(11,390,000

)Income before taxes$1,979,000

Provision for income taxes(720,000)¹³

Net Income after taxes$1,259,000¹⁴

Notes:

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.

Of the $20,000 interest 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 2015 (a private activity bond), $6,000 was from a fully taxable corporate bond, and the remaining $2,000 was from a money market account.

This gain is from equipment that XYZ purchased in February and sold in December (i.e., it does not qualify as 1231 gain).

This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation).

This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers).

XYZ actually wrote off $27,000 of its accounts receivable as uncollectible.

Tax depreciation was $1,900,000.

In the current year, XYZ did not make any actual payments on warranties it provided to customers.

XYZ made $500,000 of cash contributions to qualified charities during the year.

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.

XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes.

The other expenses do not contain any items with book-tax differences.

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 estimated 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:

Quarter-endCumulative taxable income (loss)First$350,000Second$800,000Third$1,000,000

***PLEASE COMPLETE SCHEDULE L, M-1 & M-2******

***PLEASE COMPLETE SCHEDULE L, M-1 & M-2******