XYZ is a calendar-year corporation that began business on January 1, 2018. For the year, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below.

XYZ corp.

Book

Income

Income statement

For current year

Revenue from sales: $40,000,000

Cost of Goods Sold: (27,000,000)

Gross profit: $13,000,000

Other income:

Income from investment in corporate stock: 300,000 1

Interest income: 20,000 2

Capital gains (losses): (4,000)

Gain or loss from disposition of fixed assets: 3,000 3

Miscellaneous income: 50,000

Gross Income: $13,369,000

Expenses:

Compensation: (7,500,000) 4

Stock option compensation: (200,000) 5

Advertising: (1,350,000)

Repairs and Maintenance: (75,000)

Rent: (22,000)

Bad Debt expense: (41,000) 6

Depreciation: (1,400,000) 7

Warranty expenses: (70,000) 8

Charitable donations: (500,000) 9

Meals: (18,000)

Goodwill impairment: (30,000)10

Organizational expenditures: (44,000)11

Other expenses: (140,000)12

Total expenses: $(11,390,000)

Income before taxes: $1,979,000

Provision for income taxes: (720,000)13

Net Income after taxes: $1,259,000 14

Notes:

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.

Of the $20,000 interest income, $5,000 was from a City of Seattle bond issued in 2018 that was used to fund public activities, $7,000 was from a Tacoma City bond issued in 2017 (a private activity bond), $6,000 was from a fully taxable corporate bond, and the remaining $2,000 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 $27,000 of its accounts receivable as uncollectible.

Tax depreciation was $1,900,000.

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 qualified charities during the year.

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.

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 booktax 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 $480,000. For purposes of estimated tax liabilities, assume XYZ reported a tax liability of $800,000 in 2018. During 2019, XYZ determined its taxable income at the end of each of the four quarters as follows:

Quarter-end

Cumulative taxable income (loss)

First: $350,000

Second: $800,000

Third: $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.)

complete XYZ's Form 1120, page 1.

determine the quarters for whisch XYZ is subjext to underpayment of estimated tax penalties.

U.S. Corporation Income Tax Return For calendar yew 2019 orta year beginning 2018. nding Go to www.is.povil Form 1120 for instructions and the latest infor 2019 TYPE Numbers and room PO b o ns PRINT Chyrowo roccountry and Portugal code Balance S tact met from lineta Cost of goods o c h Form 1125-A Cross profit. Subtract line 2 from inte Dividends and inclusions Schedule Cine 23 3 4 8 9 10 11 . . . Capital gain net income attach Schedule D Form 11203 Net gain or loss from For 4797, Part I line 17 nach Form 4797) Other income instructions-attach m ent. . . . . . Total income Address tough 10 . Compensation of officers instructions-attach Form 1125-E) Salaries and wageses employment cred . Repairs and maintenance . . . . . . . 13 14 . tions for imitations on 18 17 18 19 20 Rents- Taxes and licenses . . . . . . . . interest instruction Charitati b utions Depreciation from Form 4562 not claimed on Form 1125-A or where on retum attach Form 4562) Beer 23 Pension profit sharing, plans . 24 Employee benefit programs . 25 Reserved for u se. . . . 26 Other deductions ach statement 27 Total deductions. Add lines 12 through 26. 28 Taxable income before net operan los deduction and special deductions Subtract line 27 from line 11 26 Not operating loss deduction is instructions . . . Special eduction Schedule Cine 20 - - - - And 200 Taxable income. Subtract line 28c from line 28. See instructions 31 Total Scho Partline 11 201 5 taxability paid (Schedule. Partline 12). . . 33 Total payments and con t Schedule. Partine 23 34 Estimated tax penalty See instructions. Check it Form 2220 is attached Amount owed. If line 33 war than the total of lines 31. 32. and 34. amount owed 36 Overpaymentine 33 is larger than the total of lines 31.32 and 34. a m ount overed 97 E n tram in Creed to 2020 estimated to Sign Here Yes Paid Preparer Use Only For Paperwork Reduction Act Notice, we were instructions 1120 U.S. Corporation Income Tax Return For calendar yew 2019 orta year beginning 2018. nding Go to www.is.povil Form 1120 for instructions and the latest infor 2019 TYPE Numbers and room PO b o ns PRINT Chyrowo roccountry and Portugal code Balance S tact met from lineta Cost of goods o c h Form 1125-A Cross profit. Subtract line 2 from inte Dividends and inclusions Schedule Cine 23 3 4 8 9 10 11 . . . Capital gain net income attach Schedule D Form 11203 Net gain or loss from For 4797, Part I line 17 nach Form 4797) Other income instructions-attach m ent. . . . . . Total income Address tough 10 . Compensation of officers instructions-attach Form 1125-E) Salaries and wageses employment cred . Repairs and maintenance . . . . . . . 13 14 . tions for imitations on 18 17 18 19 20 Rents- Taxes and licenses . . . . . . . . interest instruction Charitati b utions Depreciation from Form 4562 not claimed on Form 1125-A or where on retum attach Form 4562) Beer 23 Pension profit sharing, plans . 24 Employee benefit programs . 25 Reserved for u se. . . . 26 Other deductions ach statement 27 Total deductions. Add lines 12 through 26. 28 Taxable income before net operan los deduction and special deductions Subtract line 27 from line 11 26 Not operating loss deduction is instructions . . . Special eduction Schedule Cine 20 - - - - And 200 Taxable income. Subtract line 28c from line 28. See instructions 31 Total Scho Partline 11 201 5 taxability paid (Schedule. Partline 12). . . 33 Total payments and con t Schedule. Partine 23 34 Estimated tax penalty See instructions. Check it Form 2220 is attached Amount owed. If line 33 war than the total of lines 31. 32. and 34. amount owed 36 Overpaymentine 33 is larger than the total of lines 31.32 and 34. a m ount overed 97 E n tram in Creed to 2020 estimated to Sign Here Yes Paid Preparer Use Only For Paperwork Reduction Act Notice, we were instructions 1120