XYZ is a calendar-year corporation that began business on January 1, 2020. For the year, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below. Assume CARES Act applies. Use Exhibit 16-6. Book Income $ 40,000,000 (27,000,000) $ 13,000,000 XYZ corp. Income statement For current year Revenue from sales Cost of Goods Sold Gross profit 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 Expenses: Compensation Stock option compensation Advertising Repairs and Maintenance Rent Bad Debt expense Depreciation Warranty expenses Charitable donations Meals Goodwill impairment Organizational expenditures Other expenses Total expenses 300, 8081 20,0002 (4,800) 3, 0903 50,000 $ 13,369,000 (7,500,000)4 (200,000) (1,350,000) (75,000) (22,000) (41,000)6 (1,400,000) (70,000) 8 (500,000) (18,000) (30,000/10 (44, eee) 11 (140,000) 12 $(11,390,000 Total expenses Income before taxes Provision for income taxes Net Income after taxes $(11,390,000) $ 1,979,000 (400,000)13 $ 1,579,000 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, $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 (le, 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). 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 . XYZ did not elect to use the 25% of modified taxable income limitation to determine its charitable contribution deduction 10. 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 $360,000 ($90,000 per quarter). For purposes of estimated tax hintin - VV7 rin avletanca in 2010 and that in 2001 vanatai atau liability resonnnn nurinn 2006 vv7 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 $360,000 ($90,000 per quarter). For purposes of estimated tax labilities, assume XYZ was in existence in 2019 and that in 2019 it reported a tax liability of $500,000. During 2020, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end First Second Third Cumulative taxable income (loss) $ 400,000 $1,100,000 $1,400,000 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.) a. Compute XYZ's taxable income. Taxable income 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 $360,000 ($90,000 per quarter). For purposes of estimated tax liabilities, assume XYZ was in existence in 2019 and that in 2019 it reported a tax liability of $500,000. During 2020, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end First Second Third Cumulative taxable income (toss) $ 400,000 $1,100,000 $1,400,000 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 The ability cComplete XYZ's Schedule M-1. (Enter all amounts as positive numbers.) Schedule M1 Schedule M1 Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return Note: The corporation may be required to file Schedule M-3. Sto instruction, 1 Nett) per books 2. Federal income tax per books Excess of cases were plain 4 Icon box no recorded on books this year(); 7 Income recorded on this year no included on this returneres Tempt interest Deduction on this retur not charged Epos corded on books this year not deducted on this retum against book income is your fami) Depreciation Depreciation Chario contro Chantable contrbutions Travel and entertainment Other Chemie Other Add lines and Address 10 Income (1.28 no less THIS FORM IS A SIMULATION OF AN OFFICIAL US. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF DO NOT USE THE FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL 2020 Merww-Hill Education Required information OMB No. 1545-0123 2019 B Employer identification number C Date Incorporated (medy) D Totalt (se instructions) (4) Address change 0 Form 1120 U.S. Corporation Income Tax Return Department of the Treasury For calendar year 2019 or tax year beginning 2019, ending. 20 Internal Revenue Service Go to www.ingowlForm1120 for instructions and the latest information A Check it Name 1a Commolidated return (attach Form 851) TYPE bile non consolidated return OR Number, street, and room or suito no Ita PO box, se instruction, 2 Personal holding co. (attach Sch. PH) PRINT 3 Personal service corp (einstructions) City of town, state or province, country, and ZIP or foreign postal code 4 Schedule M-3 attached E Check (1) Initial return O) Final retum (3) Name change 18 Gross receipts of sales ta b Returns and allowances 1b Balance Subtract line 1b from linea 2 Cost of goods sold (attach Form 1125-A) Gross profit. Subtract line 2 from inte 4 Dividends and inclusions (Schedule C, line 23) Income 5 interest 6 Grossrents 7 Gross royalties 8 Capital gain net income (attach Schedule (Form 1120)) 9 Net gain or (los) from Form 4797, Part II, line 17 (attach Form 4797) 10 Other Income (see instruction attach statement) 11 Total income. Add lines through 10 12 Corporation of officer (se instructions-attach Form 1125 E) 13 Salaries and wages des employement credits) 14 Repairs and maintenance 15 Bad dobits 16 2 3 4 5 6 7 10 11 12 13 14 15 Required information Deductions (See Instructions for limitations on deductions.) 16 Rants 16 17 Taxes and licenses 17 18 interest (see instructions) 18 19 Charitable contributions 19 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on retum (attach Form 4562) 20 21 Depletion 21 22 Advertising 22 23 Pension, proft-sharing, eto, plans 23 24 Employee benefit programs 24 25 Reserved for future use 25 26 Other deductions (attach statement) 26 27 Total deductions. Add lines 12 through 26 27 28 Taxable income before net operating loss deduction and special deductions. Subtractine 27 from line 11 28 29 Net operating loss deduction (see instructions) 290 Special deductions (Schedule C, line 24) 29b C Add lines 29 and 29b 290 30 Taxable income. Subtract line 29c from line 28. see instructions 30 31 Total tax (Schedule J. Part I, line 11) 31 32 2019 net 965 tax liability paid (Schedule J. Part It, line 12) 32 33 Total payments, credits, and section 965 net tax liability (Schedule J. Part I line 23) 33 4 Estimated tax penalty. See Instructions. Check Form 2220 is attached 35 Amount owed. I line 33 is smaller than the total of lines 31, 32 and 34, enter amount owed 35 36 Overpayment. Wine 33 is larger than the total of lines 31, 32 and 34. enter amount overpaid 36 37 Enter amount from line 35 you want Credited to 2020 estimated tax Refunded 37 Undnt penales of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief. It is true, correct, and complete. Declaration of preparar (other than taxpayer) is based on all information of which proper has any knowledge May the IRS discuss this return with the prepare shown below? Instructions Signature of officer Date Tide Yes No Tax, Refundable Credits, and Payments Sign Here ework Corporate fax Retum Ch 16 i Seved Help Required information 33 Total payments, credits, and section 965 not taxablity (Schedule , Parti, line 23) Refundable 34 Estimated tax penalty. See instructions. Check if Form 2220 is tached 34 Credits, and 35 Amount owed. Wine 33 is smaller than the total of lines 31, 32, and 34, enter amount owed 35 Payments 36 Overpayment. Wine 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want Credited to 2020 estimated tax Refunded 37 Under perties of perjury, I declare that I have examined this return, including companying schedules and statements, and to the best of my knowledge and beliet, la true, correct, and complete. Declaration of preparee (other than taxpayer) is based on all information of which preparer han any knowledge. May the IRS discuss his return with Sign the preparer shown below? See Instruction Here Signature of officer Date Title Yes No PrintType preparer's name Preparar's signature Dale PTIN Paid Check ifs employed Firm's name Preparer Firm's EIN Use Only Firm's address Phone no For Paperwork Reduction Act Notice, see separate instructions Cat No. 114500 Form 1120 2010) THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL 2020 MeGraw-Hill Education. e. Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties. (Round "Annualization Factor" for Fourth quarter to 2 decimal places.) Installment (1) Required cumulative (2) Estimated tax payment per payment under quarter) under prior annualized method year tax method (3) Required payment based on current year tax liability (4) Required cumulative payment (5) Actual payment Underpayment penalty 1st quarter 2nd quarter 3rd quarter 4th quarter XYZ is a calendar-year corporation that began business on January 1, 2020. For the year, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below. Assume CARES Act applies. Use Exhibit 16-6. Book Income $ 40,000,000 (27,000,000) $ 13,000,000 XYZ corp. Income statement For current year Revenue from sales Cost of Goods Sold Gross profit 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 Expenses: Compensation Stock option compensation Advertising Repairs and Maintenance Rent Bad Debt expense Depreciation Warranty expenses Charitable donations Meals Goodwill impairment Organizational expenditures Other expenses Total expenses 300, 8081 20,0002 (4,800) 3, 0903 50,000 $ 13,369,000 (7,500,000)4 (200,000) (1,350,000) (75,000) (22,000) (41,000)6 (1,400,000) (70,000) 8 (500,000) (18,000) (30,000/10 (44, eee) 11 (140,000) 12 $(11,390,000 Total expenses Income before taxes Provision for income taxes Net Income after taxes $(11,390,000) $ 1,979,000 (400,000)13 $ 1,579,000 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, $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 (le, 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). 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 . XYZ did not elect to use the 25% of modified taxable income limitation to determine its charitable contribution deduction 10. 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 $360,000 ($90,000 per quarter). For purposes of estimated tax hintin - VV7 rin avletanca in 2010 and that in 2001 vanatai atau liability resonnnn nurinn 2006 vv7 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 $360,000 ($90,000 per quarter). For purposes of estimated tax labilities, assume XYZ was in existence in 2019 and that in 2019 it reported a tax liability of $500,000. During 2020, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end First Second Third Cumulative taxable income (loss) $ 400,000 $1,100,000 $1,400,000 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.) a. Compute XYZ's taxable income. Taxable income 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 $360,000 ($90,000 per quarter). For purposes of estimated tax liabilities, assume XYZ was in existence in 2019 and that in 2019 it reported a tax liability of $500,000. During 2020, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end First Second Third Cumulative taxable income (toss) $ 400,000 $1,100,000 $1,400,000 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 The ability cComplete XYZ's Schedule M-1. (Enter all amounts as positive numbers.) Schedule M1 Schedule M1 Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return Note: The corporation may be required to file Schedule M-3. Sto instruction, 1 Nett) per books 2. Federal income tax per books Excess of cases were plain 4 Icon box no recorded on books this year(); 7 Income recorded on this year no included on this returneres Tempt interest Deduction on this retur not charged Epos corded on books this year not deducted on this retum against book income is your fami) Depreciation Depreciation Chario contro Chantable contrbutions Travel and entertainment Other Chemie Other Add lines and Address 10 Income (1.28 no less THIS FORM IS A SIMULATION OF AN OFFICIAL US. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF DO NOT USE THE FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL 2020 Merww-Hill Education Required information OMB No. 1545-0123 2019 B Employer identification number C Date Incorporated (medy) D Totalt (se instructions) (4) Address change 0 Form 1120 U.S. Corporation Income Tax Return Department of the Treasury For calendar year 2019 or tax year beginning 2019, ending. 20 Internal Revenue Service Go to www.ingowlForm1120 for instructions and the latest information A Check it Name 1a Commolidated return (attach Form 851) TYPE bile non consolidated return OR Number, street, and room or suito no Ita PO box, se instruction, 2 Personal holding co. (attach Sch. PH) PRINT 3 Personal service corp (einstructions) City of town, state or province, country, and ZIP or foreign postal code 4 Schedule M-3 attached E Check (1) Initial return O) Final retum (3) Name change 18 Gross receipts of sales ta b Returns and allowances 1b Balance Subtract line 1b from linea 2 Cost of goods sold (attach Form 1125-A) Gross profit. Subtract line 2 from inte 4 Dividends and inclusions (Schedule C, line 23) Income 5 interest 6 Grossrents 7 Gross royalties 8 Capital gain net income (attach Schedule (Form 1120)) 9 Net gain or (los) from Form 4797, Part II, line 17 (attach Form 4797) 10 Other Income (see instruction attach statement) 11 Total income. Add lines through 10 12 Corporation of officer (se instructions-attach Form 1125 E) 13 Salaries and wages des employement credits) 14 Repairs and maintenance 15 Bad dobits 16 2 3 4 5 6 7 10 11 12 13 14 15 Required information Deductions (See Instructions for limitations on deductions.) 16 Rants 16 17 Taxes and licenses 17 18 interest (see instructions) 18 19 Charitable contributions 19 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on retum (attach Form 4562) 20 21 Depletion 21 22 Advertising 22 23 Pension, proft-sharing, eto, plans 23 24 Employee benefit programs 24 25 Reserved for future use 25 26 Other deductions (attach statement) 26 27 Total deductions. Add lines 12 through 26 27 28 Taxable income before net operating loss deduction and special deductions. Subtractine 27 from line 11 28 29 Net operating loss deduction (see instructions) 290 Special deductions (Schedule C, line 24) 29b C Add lines 29 and 29b 290 30 Taxable income. Subtract line 29c from line 28. see instructions 30 31 Total tax (Schedule J. Part I, line 11) 31 32 2019 net 965 tax liability paid (Schedule J. Part It, line 12) 32 33 Total payments, credits, and section 965 net tax liability (Schedule J. Part I line 23) 33 4 Estimated tax penalty. See Instructions. Check Form 2220 is attached 35 Amount owed. I line 33 is smaller than the total of lines 31, 32 and 34, enter amount owed 35 36 Overpayment. Wine 33 is larger than the total of lines 31, 32 and 34. enter amount overpaid 36 37 Enter amount from line 35 you want Credited to 2020 estimated tax Refunded 37 Undnt penales of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief. It is true, correct, and complete. Declaration of preparar (other than taxpayer) is based on all information of which proper has any knowledge May the IRS discuss this return with the prepare shown below? Instructions Signature of officer Date Tide Yes No Tax, Refundable Credits, and Payments Sign Here ework Corporate fax Retum Ch 16 i Seved Help Required information 33 Total payments, credits, and section 965 not taxablity (Schedule , Parti, line 23) Refundable 34 Estimated tax penalty. See instructions. Check if Form 2220 is tached 34 Credits, and 35 Amount owed. Wine 33 is smaller than the total of lines 31, 32, and 34, enter amount owed 35 Payments 36 Overpayment. Wine 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want Credited to 2020 estimated tax Refunded 37 Under perties of perjury, I declare that I have examined this return, including companying schedules and statements, and to the best of my knowledge and beliet, la true, correct, and complete. Declaration of preparee (other than taxpayer) is based on all information of which preparer han any knowledge. May the IRS discuss his return with Sign the preparer shown below? See Instruction Here Signature of officer Date Title Yes No PrintType preparer's name Preparar's signature Dale PTIN Paid Check ifs employed Firm's name Preparer Firm's EIN Use Only Firm's address Phone no For Paperwork Reduction Act Notice, see separate instructions Cat No. 114500 Form 1120 2010) THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL 2020 MeGraw-Hill Education. e. Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties. (Round "Annualization Factor" for Fourth quarter to 2 decimal places.) Installment (1) Required cumulative (2) Estimated tax payment per payment under quarter) under prior annualized method year tax method (3) Required payment based on current year tax liability (4) Required cumulative payment (5) Actual payment Underpayment penalty 1st quarter 2nd quarter 3rd quarter 4th quarter