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) $ 13,080,880 300,0001 20,0002 (4,000) 3, 0093 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 (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, eee, 12 $(11,390,000) Organizational expenditures Other expenses Total expenses Income before taxes Provision for income taxes Net Income after taxes (44,000) 11 (140,000) 12 $(11,390,000) $ 1,979,000 (720,000)13 $ 1,259, 00014 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 (1.e., 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. 10. On July 1 of this year XYZ acquired the assets of another business. In the process it acquired $300,000 of vill. 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. 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 Second Third Cumulative taxable 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.) c. Complete 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. See instructions 1 Net Income (los) per books 2 Federal income tax per books 3 Excess of capital losses over capital gains 4 Income subject to tax not recorded on books this year (temire) 7 Income recorded on books this year not included on this return tomto Tax-exempt interest 8 Deductions on this retum nof charged Expenses recorded on books this year not deducted on this rolu (tomize): against book income this year tom a Depreciation a Depreciation b Charitable contributions b Charitable contributions Travel and entertainment c Other itemize Other (tamize) 9 Add lines 7 and 8 6 Addnes 1 through 5 10 Income (page 1, line 28)--tine less line 9 THIS FORM IS A SIMULATION OF AN OFFICIALUS. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF DO NOT USE THIS FORM FOR TAX FILINGS OR FOR A PURPOSE OTHER THAN EDUCATIONAL 2010 Meraw-Hill Education