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. Use Exhibit 16-6. XYZ corp. Income statement For current year Revenue from sales Cost of Goods Sold Gross profit Book Income $ 40,000,000 (27,000,000) $ 13,000,000 300,0001 20,0002 (4,000) 3,0003 50,000 $ 13,369,000 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 Income before taxes Provision for income taxes (7,500,000,4 (200,000 5 (1,350,000) (75,000) (22,000) (41,000,6 (1,400,000,7 (70,000,8 (500,000,9 (18,000) (30,000,10 (44,000,11 (140,000, 12 $(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 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. 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). 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. 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 $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 First Cumulative taxable income (loss) $ 350,000 1 Perennai cervice mrn ieee instructionell in state or nmvince country and / or treinn nnetalne 111 intal accete icon inetnuirtinne! Required information 0 Income 11 12 5,000,000 13 14 15 1a Gross receipts or sales 1a b Returns and allowances 10 c Balance. Subtract line 1b from line 1a 2 Cost of goods sold (attach Form 1125-A) 3 Gross profit. Subtract line 2 from line 10 4 Dividends and inclusions (Schedule C, line 23, column (a)) 5 Interest 6 Gross rents 7 Gross royalties 8 Capital gain net income (attach Schedule D (Form 1120)) 9 Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) 10 Other income (see instructions-attach statement) 11 Total income. Add lines 3 through 10 12 Compensation of officers (see instructions-attach Form 1125-E) 13 Salaries and wages (less employement credits) 14 Repairs and maintenance 15 Bad debts 16 Rents 17 Taxes and licenses 18 Interest (see instructions) 19 Charitable contributions 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) 21 Depletion 22 Advertising 23 Pension, profit-sharing, etc., plans 24 Employee benefit programs 25 Reserved for future use 26 Other deductions (attach statement) 27 Total deductions. Add lines 12 through 26 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 29a Net operating loss deduction (see instructions) 29a b Special deductions (Schedule C, line 24, column (c)) C Add lines 29a and 29b 30 Taxable income. Subtract line 29c from line 28. see instructions Deductions (See instructions for limitations on deductions.) 26 27 28 5,000,000 (5,000,000) 29b 29c 30 (5,000,000) 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. Use Exhibit 16-6. XYZ corp. Income statement For current year Revenue from sales Cost of Goods Sold Gross profit Book Income $ 40,000,000 (27,000,000) $ 13,000,000 300,0001 20,0002 (4,000) 3,0003 50,000 $ 13,369,000 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 Income before taxes Provision for income taxes (7,500,000,4 (200,000 5 (1,350,000) (75,000) (22,000) (41,000,6 (1,400,000,7 (70,000,8 (500,000,9 (18,000) (30,000,10 (44,000,11 (140,000, 12 $(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 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. 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). 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. 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 $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 First Cumulative taxable income (loss) $ 350,000 1 Perennai cervice mrn ieee instructionell in state or nmvince country and / or treinn nnetalne 111 intal accete icon inetnuirtinne! Required information 0 Income 11 12 5,000,000 13 14 15 1a Gross receipts or sales 1a b Returns and allowances 10 c Balance. Subtract line 1b from line 1a 2 Cost of goods sold (attach Form 1125-A) 3 Gross profit. Subtract line 2 from line 10 4 Dividends and inclusions (Schedule C, line 23, column (a)) 5 Interest 6 Gross rents 7 Gross royalties 8 Capital gain net income (attach Schedule D (Form 1120)) 9 Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) 10 Other income (see instructions-attach statement) 11 Total income. Add lines 3 through 10 12 Compensation of officers (see instructions-attach Form 1125-E) 13 Salaries and wages (less employement credits) 14 Repairs and maintenance 15 Bad debts 16 Rents 17 Taxes and licenses 18 Interest (see instructions) 19 Charitable contributions 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) 21 Depletion 22 Advertising 23 Pension, profit-sharing, etc., plans 24 Employee benefit programs 25 Reserved for future use 26 Other deductions (attach statement) 27 Total deductions. Add lines 12 through 26 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 29a Net operating loss deduction (see instructions) 29a b Special deductions (Schedule C, line 24, column (c)) C Add lines 29a and 29b 30 Taxable income. Subtract line 29c from line 28. see instructions Deductions (See instructions for limitations on deductions.) 26 27 28 5,000,000 (5,000,000) 29b 29c 30 (5,000,000)