QUESTION #2(17 MARKS):- You have been asked to prepare the Schedule 1 reconciliation of accounting income to taxable income for the X Company for the year ended December 31st. 2021. The following income statement and miscellaneous financial information for the year 2021 were provided to you:- Sales.$8,400,000 Cost of Sales. 3,600,000 Gross Profit.$4,800,000 EXPENSES:- General and administrative expenses 450,000 Amortization 150,000 Interest.. 120,000 $4,080,000 Gain on Disposal of fixed Assets.. 126,500 Net Income before income taxes.$4,206,500 Income Taxes:- Current.................$900,000 Deferred................510,000 .1,410,000 Net Income after taxes..$2,797,500 During your review of the working paper file and last years tax return, you have made the following notes to yourself, because you think that there might be tax implications associated with these items. 1. Included in the cost of goods sold is a reserve of a possible decline in the market value of finished goods inventory of $85,500. There is also an obsolescence reserve of $300,000 for some raw material that were purchased from a supplier and were later found to be defective and worthless. So far, the supplier has refused to allow the Company to return the material for a refund. 2. The gain on the disposal of fixed assets consists of the accounting gain on the sale of some land for $622,500 on May 30th. 2021. X had purchased the land in on January 15th. 2019 for $482,500. The land was purchased with the intention of it being used to expand the manufacturing operation. After purchasing the property, X received some bad publicity and complaints regarding the expansion plans, as the land was very close to a new housing development. The real estate commission to sell the land was $22,500. 3. General and administrative expenses include:- i. Donations of $93,500 to registered charities and $1,500 to registered political parties.$95,000 ii. Accrued bonuses, fully paid June 30th..2021. 66,000 iii. An accrual for a potential settlement to a former employee for an injury received on the job. X was notified of the pending lawsuit.90,000 iv. Contributions were made in 2021 and allocated by the accountant to the defined pension plans for senior executives: Contributions to Defined Pension Employment Plan Compensation Executive A.$ 8,350.......$130,000 Executive B.. 6,400....... 70,000 Executive C.. 5,300...... 50,000

Required:- Prepare the requested reconciliation. State any assumptions made in determining inclusions and omissions. Provide explanations for inclusion if not self-explanatory.