Required information

Comprehensive Problem $05-65($LO $05-1,$ LO $05-2,$ LO $05-3)($Algo$)$

Skip to question

$[$The following information applies to the questions displayed below.$]$

XYZ is a calendar$-$year corporation that began business on January $1,2023.$ 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 $16-6.$

XYZ corporation Income statement For current year Book Income

Revenue from sales $ $42,400,000$

Cost of Goods Sold $(28,620,000)$

Gross profit $ $13,780,000$

Other income:

Income from investment in corporate stock $300,0001$Footnote $1$

Interest income $29,6002$Footnote $2$

Capital gains $($losses$)(4,000)$

Gain or loss from disposition of fixed assets $3,0003$Footnote $3$

Miscellaneous income $50,000$

Gross Income $ $14,158,600$

Expenses:

Compensation $(7,524,000)4$Footnote $4$

Stock option compensation $(224,000)5$Footnote $5$

Advertising $(1,374,000)$

Repairs and Maintenance $(87,000)$

Rent expense $(34,000)$

Bad Debt expense $(53,000)6$Footnote $6$

Depreciation $(1,700,000)7$Footnote $7$

Warranty expenses $(94,000)8$Footnote $8$

Charitable donations $(500,000)9$Footnote $9$

Meals $(38,400)$

Goodwill impairment $(36,000)10$Footnote $10$

Organizational expenditures $(47,000)11$Footnote $11$

Other expenses $(164,000)12$Footnote $12$

Total expenses $ $(11,875,400)$

Income before taxes $ $2,283,200$

Provision for income taxes $(400,000)13$Footnote $13$

Net Income after taxes $ $1,883,200$

XYZ owns $30\%$ of the outstanding Hobble Corporation $($HC$)$ stock. Hobble Corporation reported $$1,000,000$ of income for the year. XYZ accounted for its investment in HC under the equity method, and it recorded its pro rata share of HC$\text{'}$s earnings for the year. HC also distributed a $$200,000$ dividend to XYZ$.$ For tax purposes, HC reports the actual dividend received as income, not the pro rata share of HC$\text{'}$s earnings.

Of the $$29,600$ interest income, $$7,400$ was from a City of Seattle bond, $$9,400$ was from a Tacoma City bond, $$8,400$ was from a fully taxable corporate bond, and the remaining $$4,400$ 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 $$33,000$ of its accounts receivable as uncollectible.

Tax depreciation was $$2,200,000.$

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 charities during the year

On July $1$ of this year, XYZ acquired the assets of another business. In the process, it acquired $$336,000$ of goodwill. At the end of the year, XYZ wrote off $$36,000$ 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 $$440,000($$$110,000$ per quarter$).$ For purposes of estimated tax liabilities, assume XYZ was in existence in $2022$ and that in $2022$ it reported a tax liability of $$612,000.$ During $2023,$ XYZ determined its taxable income at the end of each of the first three quarters as follows:

Quarter$-$end Cumulative taxable income $($loss$)$

First $ $460,000$

Second $ $1,160,000$

Third $ $1,660,000$

Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations.

Note: Do not round intermediate calculations. Round your answers to the nearest dollar amount.

Comprehensive Problem $05-65$ Part c $($Algo$)$

c$.$ Complete XYZ$\text{'}$s Schedule M$-1.$

Note: Enter all amounts as positive numbers.