Required information The following information applies to the questions displayed below. XYZ is a calendar-year corporation that began business on January 1, 2017. For 2018, it reported the following information Part 1 of 5 in its current-year audited income statement. Notes with important tax information are provided below. Use Exhibit 16-6 10 polnts xyz corp Income statement For current year Book Income Revenue from sales Cost of Goods Sold $40,000,000 27,000,000 $ 13,000,000 Gross profit e Book 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 300,0001 20,0002 (4,000) 3,0003 Print 50,00 References 13, 369,000 Expenses: Compensation Stock option compensation Advertising Repairs and Maintenance Rent (7,500,e00)4 (200,000)5 (1,350,e00) (75,000) (22,000) (41,0006 Bad Debt expense Depreciation (1,400,000)7 Warranty expenses Charitable donations Meals Goodwill impairment (70,000) 8 (500,000 9 (18,000) (30,000 1 (44,000 11 Organizational expenditures Other expenses (140,000 12 Total expenses Income before taxes Provision for income taxes 11 ,390,000 1,979,000 (720,000 13 $1,259,00014 Net Income after taxes 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 also distributed a $200,000 dividend to XYZ. 2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond issued in 2017 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. 3. This gain is from equipment that XYZ purchased in February and sold in December (ie, it does not qualify as 51231 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. 0. 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 $480,000. For purposes of estimated tax liabilities, assume XYZ reported a tax liability of $800,000 in 2017. During 2018, XYZ determined its taxable income at the end of each of the four quarters as follows Cumulative taxable Quarter-end First Second Third income (loss) $ 350,000 $ 800,000 $ 1,000,000 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.) b. Compute XYZ's income tax liability Answer is complete but not entirely correct. Tax liability S 367,156 c. Complete XYZ's Schedule M-1. (Enter all amounts as positive numbers.) Answer is complete and correct Schedule M-1: Reconciliation of Income (Loss) per Books With Income per Return $ 1,259,000 720,000 4,000 1.Net income (loss) per books Federal income tax provision Excess of capital losses over capital gains 4. Income subject to tax not recorded on books this year (itemize) 5.Expenses recorded on books this year not deducted on this return (itemize) a. Depreciation b. Contributions carryover C. Meals Stock option compensation (incentive stock options) Bad debt expense Warranty expense Goodwill impairment Organizational expenditures Total 277,960 9,000 200,000 14,000 70,000 20,000 36,400 $ 2,610,360 7. Income recorded on books this year not included on this return (itemize) 12,000 100,000 Tax-exempt interest Income from investment in corporate stock Deductions on this return not charged against book income this year (itemize) a. Depreciation b. Contributions carryover Total Income 8. 500,000 612,000 10 $ 1,998,360 d. Complete XYZ's Form 1120, page 1. Download the Tax Form nd enter the required values in the appropriate fields. Pleese right click on the attached Adobe document and select open in new window. Then, download the Tax Form and enter the required values in the appropriate fields. Save your completed Tax Form to your computer and then upload it here by clicking "Browse." Next, click "Save." Use 2018 tax rules regardless of year on tax form. upload a response file (15MB max) Choose File No file chosen download referenc tile 1 11120.pd U.S. Corporatlon Income Tax Return OMB No. 1545-0123 Fom 20-1 2018 For calendar year 2018 or tax year beginning 2018, ending Go to www.irs govIFom1120 for Instructions and the latest Information A Chack if a Consoildated ratun atach Farm 851) b Lta/monifa consol- Number, stroot, and room or suito no. Ifa P.O.box, soo instructions C Date co. PRINT Farsonal aach Scth Parsonal sarvica corp City or towm, state or provinca, country, and ZAP or foroign postal oodo M3 attachad E Chack if Gross recelpts or sales Returns and allowances 1a b c Balance. Subtract lne 1b from Ine 1a 2 Cost of goods soid (attach Form 1125-A) 3 Gross profit. Subtract line 2 from Ine 1c 4 Dividends and Incluslons (Schedule C, line 23, column (a) 5 Interest 6 Gross rents 7 Gross royaties 8 Capltal galn net Income (attach Schedule D (Forrm 1120 9 Net gain or poss) from Form 4797, Part II, Ine 17 (attach Form 4797) 10 Other income (see nstructions-attach statement 11 Total Income. Add IneS 3 12 Compensation of oficers (see Instructions-attach Form 1125-E 13 Salaries and wages (ess employment credits 14 Repairs and maintenance 15 Bad debts 16 Rents 17 Taxes and lIcenses 18 Interest (see Instructions) 19 Charttable contributions 20 Depreclation trom Form 4582 not claimed on Form 1125-A or elsewhere on retum (attach Form 4562) 21 Depletion 22 Advertising 23 Pension, profit-sharing, etc., plans 24 Employee beneft programs 25 Reserved for future use 12 15 1 26 other deductions (attach statemen 27 Total deductions. Add Ines 12 through 26 28 Taxable Income bafore net operating loss deduction and special dedtuctions. Subtract line 27 from ine 11. 28 29a Net operating loss deduction (see nstructions) 27 b special deductions (Schedule C, Ine 24, column Ec 30 Taxable Income. Subtract Ine 29c from lne 28. See Instructions 31 Total tax (Schedule J, Part L line 11) 32 2018 net 985 tax llability paid (Schedule J, Part IL, line 12 33 Total payments, credits, and section 965 net tax Ilability (Schedule J, Part IlI, Iine 23) 34 Estlmated tax penalty. See nstructions. Check If Form 2220 is attached 35 Amount owed. It Ine 33 is smaller than the total of Ines 31, 32, and 34, enter amount owed 36 Overpayment. If Ine 33 is larger than the total of lines 31, 32, and 34, enter amount overpald 37 Enter amount from lIne 36 you want: Credited to 2019 estimated tax unda panlas of papy, Idaclure that l tuvo axamined his return, nclud ng accompanying schedules and statam ants, and to the baet of my kowedga and balatittrua, corract. and oom ist. Dadraton of re arar ott r tan taxpa ar Sign Here basadonalnommation of which ra arw his nino lodoa May tho IRS dscuss this ratum Signaturo of officar itla Print/Typo proparars nama Data Paid Prepare Use Only Fm's namo For Paperwork Reduction Act Notice, see separate Instructions. Chack Firm's EN Frm's addrass Cat. No. 114500 Form 1120 (2018) e. Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties (1) Required payment (per year tax method (3) Required payment under payment based on (4) Required cumulative cumulative (2) Estimated tax (5) Actual payments Underpayment penalty Installment current year tax liability quarter) under prior annualized methoo payment 1st quarter 2nd quarter 3rd quarter 4th quarter 120,000 No 240,000 No 360,000 No 480,000 No Required information The following information applies to the questions displayed below. XYZ is a calendar-year corporation that began business on January 1, 2017. For 2018, it reported the following information Part 1 of 5 in its current-year audited income statement. Notes with important tax information are provided below. Use Exhibit 16-6 10 polnts xyz corp Income statement For current year Book Income Revenue from sales Cost of Goods Sold $40,000,000 27,000,000 $ 13,000,000 Gross profit e Book 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 300,0001 20,0002 (4,000) 3,0003 Print 50,00 References 13, 369,000 Expenses: Compensation Stock option compensation Advertising Repairs and Maintenance Rent (7,500,e00)4 (200,000)5 (1,350,e00) (75,000) (22,000) (41,0006 Bad Debt expense Depreciation (1,400,000)7 Warranty expenses Charitable donations Meals Goodwill impairment (70,000) 8 (500,000 9 (18,000) (30,000 1 (44,000 11 Organizational expenditures Other expenses (140,000 12 Total expenses Income before taxes Provision for income taxes 11 ,390,000 1,979,000 (720,000 13 $1,259,00014 Net Income after taxes 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 also distributed a $200,000 dividend to XYZ. 2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond issued in 2017 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. 3. This gain is from equipment that XYZ purchased in February and sold in December (ie, it does not qualify as 51231 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. 0. 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 $480,000. For purposes of estimated tax liabilities, assume XYZ reported a tax liability of $800,000 in 2017. During 2018, XYZ determined its taxable income at the end of each of the four quarters as follows Cumulative taxable Quarter-end First Second Third income (loss) $ 350,000 $ 800,000 $ 1,000,000 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.) b. Compute XYZ's income tax liability Answer is complete but not entirely correct. Tax liability S 367,156 c. Complete XYZ's Schedule M-1. (Enter all amounts as positive numbers.) Answer is complete and correct Schedule M-1: Reconciliation of Income (Loss) per Books With Income per Return $ 1,259,000 720,000 4,000 1.Net income (loss) per books Federal income tax provision Excess of capital losses over capital gains 4. Income subject to tax not recorded on books this year (itemize) 5.Expenses recorded on books this year not deducted on this return (itemize) a. Depreciation b. Contributions carryover C. Meals Stock option compensation (incentive stock options) Bad debt expense Warranty expense Goodwill impairment Organizational expenditures Total 277,960 9,000 200,000 14,000 70,000 20,000 36,400 $ 2,610,360 7. Income recorded on books this year not included on this return (itemize) 12,000 100,000 Tax-exempt interest Income from investment in corporate stock Deductions on this return not charged against book income this year (itemize) a. Depreciation b. Contributions carryover Total Income 8. 500,000 612,000 10 $ 1,998,360 d. Complete XYZ's Form 1120, page 1. Download the Tax Form nd enter the required values in the appropriate fields. Pleese right click on the attached Adobe document and select open in new window. Then, download the Tax Form and enter the required values in the appropriate fields. Save your completed Tax Form to your computer and then upload it here by clicking "Browse." Next, click "Save." Use 2018 tax rules regardless of year on tax form. upload a response file (15MB max) Choose File No file chosen download referenc tile 1 11120.pd U.S. Corporatlon Income Tax Return OMB No. 1545-0123 Fom 20-1 2018 For calendar year 2018 or tax year beginning 2018, ending Go to www.irs govIFom1120 for Instructions and the latest Information A Chack if a Consoildated ratun atach Farm 851) b Lta/monifa consol- Number, stroot, and room or suito no. Ifa P.O.box, soo instructions C Date co. PRINT Farsonal aach Scth Parsonal sarvica corp City or towm, state or provinca, country, and ZAP or foroign postal oodo M3 attachad E Chack if Gross recelpts or sales Returns and allowances 1a b c Balance. Subtract lne 1b from Ine 1a 2 Cost of goods soid (attach Form 1125-A) 3 Gross profit. Subtract line 2 from Ine 1c 4 Dividends and Incluslons (Schedule C, line 23, column (a) 5 Interest 6 Gross rents 7 Gross royaties 8 Capltal galn net Income (attach Schedule D (Forrm 1120 9 Net gain or poss) from Form 4797, Part II, Ine 17 (attach Form 4797) 10 Other income (see nstructions-attach statement 11 Total Income. Add IneS 3 12 Compensation of oficers (see Instructions-attach Form 1125-E 13 Salaries and wages (ess employment credits 14 Repairs and maintenance 15 Bad debts 16 Rents 17 Taxes and lIcenses 18 Interest (see Instructions) 19 Charttable contributions 20 Depreclation trom Form 4582 not claimed on Form 1125-A or elsewhere on retum (attach Form 4562) 21 Depletion 22 Advertising 23 Pension, profit-sharing, etc., plans 24 Employee beneft programs 25 Reserved for future use 12 15 1 26 other deductions (attach statemen 27 Total deductions. Add Ines 12 through 26 28 Taxable Income bafore net operating loss deduction and special dedtuctions. Subtract line 27 from ine 11. 28 29a Net operating loss deduction (see nstructions) 27 b special deductions (Schedule C, Ine 24, column Ec 30 Taxable Income. Subtract Ine 29c from lne 28. See Instructions 31 Total tax (Schedule J, Part L line 11) 32 2018 net 985 tax llability paid (Schedule J, Part IL, line 12 33 Total payments, credits, and section 965 net tax Ilability (Schedule J, Part IlI, Iine 23) 34 Estlmated tax penalty. See nstructions. Check If Form 2220 is attached 35 Amount owed. It Ine 33 is smaller than the total of Ines 31, 32, and 34, enter amount owed 36 Overpayment. If Ine 33 is larger than the total of lines 31, 32, and 34, enter amount overpald 37 Enter amount from lIne 36 you want: Credited to 2019 estimated tax unda panlas of papy, Idaclure that l tuvo axamined his return, nclud ng accompanying schedules and statam ants, and to the baet of my kowedga and balatittrua, corract. and oom ist. Dadraton of re arar ott r tan taxpa ar Sign Here basadonalnommation of which ra arw his nino lodoa May tho IRS dscuss this ratum Signaturo of officar itla Print/Typo proparars nama Data Paid Prepare Use Only Fm's namo For Paperwork Reduction Act Notice, see separate Instructions. Chack Firm's EN Frm's addrass Cat. No. 114500 Form 1120 (2018) e. Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties (1) Required payment (per year tax method (3) Required payment under payment based on (4) Required cumulative cumulative (2) Estimated tax (5) Actual payments Underpayment penalty Installment current year tax liability quarter) under prior annualized methoo payment 1st quarter 2nd quarter 3rd quarter 4th quarter 120,000 No 240,000 No 360,000 No 480,000 No