[The following information applies to the questions displayed below.] XYZ is a calendar-year corporation that began business on January 1, 2021. 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. Revenue from sales Cost of Goods Sold Gross profit XYZ corporation Income statement For current year Other income: Book Income $ 40,000,000 (27,000,000) $13,000,000 Income from investment in corporate stock Interest income Capital gains (losses) Gain or loss from disposition of fixed assets Miscellaneous income Gross Income Compensation Stock option compensation Advertising Repairs and Maintenance Rent Bad Debt expense Depreciation Warranty expenses Charitable donations Meals (all at restaurants) Goodwill impairment Organizational expenditures Other expenses Total expenses Income before taxes Provision for income taxes Net Income after taxes 300,0001 20,0002 (4,000) 3,000 50,000 $ 13,369,000 Expenses: (7,500,000)4 (200,000)5 (1,350,000) (75,000) (22,000) (41,000)6 (1,400,000)7 (70,000)8 (500,000) (18,000) (30,000)10 (44,000)11 (140,000)12 $ (11,390,000) $1,979,000 (400,000)13 $ 1,579,000 1. 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'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's earnings. 2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond, $7,000 was from a Tacoma City 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 (i.e., it does not qualify as $1231 gain). 4. This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation).