XYZ is a calendar-year corporation that began business on January1, 2017. For 2018, it reported the following information in its currentyear audited income statement. Notes with important tax information are provided below. Use Exhibit 16-6. XYZ corp. Income statement Book For current year Income Revenue from sales $40,000,000 Cost of Goods Sold (27,000,000) Gross prot $ 13,000,000 Other income: Income from investment in corporate stock 300.0001 Interest income 20,0002 Capital gains (losses) (4,000) Gain or loss from disposition of fixed assets 3,0003 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)5 Depreciation (1,400,000)7 Warranty expenses (70,000)3 Charitable donations (500,000? Meals (18,000) Goodwill impairment (30,000)IO Organizational expenditures (44,000)'1 Other expenses ('Ilfl0,000)l2 Total expenses 55 (11,390,000) Income before taxes 55 1,979,000 Provision for income taxes (720,OOO)"3 Net Income after taxes 35 1.259000\" I Notes: 1. XYZ owns 30 percent ofthe 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 2017 that was used to fund public activities. $7.000 was from a Tacoma City bond issued in 2015 (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 ofcer 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 ofcers). . 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 July1ofthis year XYZ acquired the assets of another business. In the process it acquired $300,000 of goodwill. At the end ofthe year, XYZ wrote 03330000 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 2017. During 2018, XYZ determined its taxable income at the end of each ofthe four quarters as follows: N mwaw Cumulative taxable Quanerend income (loss) First 55 350,000 Second 15 800,000 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.) Award: 5.00 points a. Compute XYZ's taxable income. _
