XYZ is a calendar-year corporation that began business on January 1, 2023. For the year, it...

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XYZ is a calendar-year corporation that began business on January 1, 2023. 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 corporation Income statement for current year Revenue from sales Cost of Goods Sold Book Income $ 40,000,000 (27,000,000) 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 Compensation Stock option compensation Advertising Expenses $13,000,000 300,0001 20,0002 (4,000) 3,000 50,000 $ 13,369,000 (7,500,000)4 (200,000)5 (1,350,000) Dra 8m Next > Advertising Repairs and Maintenance Rent expense Bad Debt expense Depreciation Warranty expenses Charitable donations Meals Goodwill impairment Organizational expenditures Other expenses Total expenses Income before taxes (1,350,000) (75,000) (22,000) (41,000)6 (1,400,000)7 (70,000)8 (500,000)9 (36,000) (30,000)10 (44,000)11 (140,000) 12 $ (11,408,000) $ 1,961,000 Provision for income taxes Net Income after taxes (400,000)13 $1,561,000 1XYZ owns 30% of the outstanding Hobble Corporation (HC) stock. Hobble Corporation 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. For tax purposes, HC reports the actual dividend received as income, not the pro rata share of HC's earnings, 2of 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. 3This gain is from equipment that XYZ purchased in February and sold in December (.e., it does not qualify as $1231 gain). 4This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation). 5This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers). 6XYZ 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. 9XYZ made $500,000 of cash contributions to charities during the year. 10On 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, 10XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes. 12The other expenses do not contain any items with book-tax differences 13This is an estimated tax provision (federal tax expensel for the year Assume that XYZ is not subiect to state 13This 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 2022 and that in 2022 it reported a tax liability of $500,000. During 2023, XYZ determined its taxable income at the end of each of the first three 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. Note: Do not round intermediate calculations. Round your answers to the nearest dollar amount. a. Compute XYZ's taxable income. Taxable income $ ES 395: b. Compute XYZ's income tax liability. Tax liability c. Complete XYZ's Schedule M-1. Note: Enter all amounts as positive numbers. Answer is not complete. Schedule M-1: Reconciliation of Income (Loss) per Books With Income per Return 1. Net income (loss) per books 2. Federal income tax provision 3. Excess of capital losses over capital gains 4. Income subject to tax not recorded on books this year (itemize) 5. Expenses recorded on books this year not deducted on this return (itemize): a. Depreciation b. Contributions carryover c. Meals Stock option compensation (incentive stock options) $ 1,561,000 400,000 4,000 9,000 200,000 Stock option compensation (incentive stock options) Bad debt expense Warranty expense 200,000 14,000 70,000 Goodwill impairment 20,000 Organizational expenditures 36,400 6. Total 2,314,400 7. Income recorded on books this year not included on this return (itemize): Tax-exempt interest 12,000 Income from investment in corporate stock 100,000 8. Deductions on this retum not charged against book income this year (itemize): a. Depreciation 500,000 b. Contributions carryover Required information Tax-exempt interest 12,000 Income from investment in corporate stock 100,000 8. Deductions on this return not charged against book income this year (itemize): a. Depreciation 500,000 b. Contributions carryover 9. Total 612,000 10. Income d. Complete XYZ's Form 1120, page 1 Note: Input all the values as positive numbers. Use 2023 tax rules regardless of year on tax form. Complete this question by entering your answers in the tabs below. e. Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties. Note: Round "Annualization Factor" for Fourth quarter to 2 decimal places. Installment 1st quarter 2nd quarter 3rd quarter 4th quarter (1) Required cumulative payment (per quarter) under prior year tax method payment (2) Estimated tax payment under annualized method (3) Required payment based on current year tax liability (4) Required cumulative (5) Actual payments Underpayment penalty No No Yes Yes XYZ is a calendar-year corporation that began business on January 1, 2023. 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 corporation Income statement for current year Revenue from sales Cost of Goods Sold Book Income $ 40,000,000 (27,000,000) 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 Compensation Stock option compensation Advertising Expenses $13,000,000 300,0001 20,0002 (4,000) 3,000 50,000 $ 13,369,000 (7,500,000)4 (200,000)5 (1,350,000) Dra 8m Next > Advertising Repairs and Maintenance Rent expense Bad Debt expense Depreciation Warranty expenses Charitable donations Meals Goodwill impairment Organizational expenditures Other expenses Total expenses Income before taxes (1,350,000) (75,000) (22,000) (41,000)6 (1,400,000)7 (70,000)8 (500,000)9 (36,000) (30,000)10 (44,000)11 (140,000) 12 $ (11,408,000) $ 1,961,000 Provision for income taxes Net Income after taxes (400,000)13 $1,561,000 1XYZ owns 30% of the outstanding Hobble Corporation (HC) stock. Hobble Corporation 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. For tax purposes, HC reports the actual dividend received as income, not the pro rata share of HC's earnings, 2of 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. 3This gain is from equipment that XYZ purchased in February and sold in December (.e., it does not qualify as $1231 gain). 4This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation). 5This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers). 6XYZ 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. 9XYZ made $500,000 of cash contributions to charities during the year. 10On 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, 10XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes. 12The other expenses do not contain any items with book-tax differences 13This is an estimated tax provision (federal tax expensel for the year Assume that XYZ is not subiect to state 13This 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 2022 and that in 2022 it reported a tax liability of $500,000. During 2023, XYZ determined its taxable income at the end of each of the first three 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. Note: Do not round intermediate calculations. Round your answers to the nearest dollar amount. a. Compute XYZ's taxable income. Taxable income $ ES 395: b. Compute XYZ's income tax liability. Tax liability c. Complete XYZ's Schedule M-1. Note: Enter all amounts as positive numbers. Answer is not complete. Schedule M-1: Reconciliation of Income (Loss) per Books With Income per Return 1. Net income (loss) per books 2. Federal income tax provision 3. Excess of capital losses over capital gains 4. Income subject to tax not recorded on books this year (itemize) 5. Expenses recorded on books this year not deducted on this return (itemize): a. Depreciation b. Contributions carryover c. Meals Stock option compensation (incentive stock options) $ 1,561,000 400,000 4,000 9,000 200,000 Stock option compensation (incentive stock options) Bad debt expense Warranty expense 200,000 14,000 70,000 Goodwill impairment 20,000 Organizational expenditures 36,400 6. Total 2,314,400 7. Income recorded on books this year not included on this return (itemize): Tax-exempt interest 12,000 Income from investment in corporate stock 100,000 8. Deductions on this retum not charged against book income this year (itemize): a. Depreciation 500,000 b. Contributions carryover Required information Tax-exempt interest 12,000 Income from investment in corporate stock 100,000 8. Deductions on this return not charged against book income this year (itemize): a. Depreciation 500,000 b. Contributions carryover 9. Total 612,000 10. Income d. Complete XYZ's Form 1120, page 1 Note: Input all the values as positive numbers. Use 2023 tax rules regardless of year on tax form. Complete this question by entering your answers in the tabs below. e. Determine the quarters for which XYZ is subject to underpayment of estimated tax penalties. Note: Round "Annualization Factor" for Fourth quarter to 2 decimal places. Installment 1st quarter 2nd quarter 3rd quarter 4th quarter (1) Required cumulative payment (per quarter) under prior year tax method payment (2) Estimated tax payment under annualized method (3) Required payment based on current year tax liability (4) Required cumulative (5) Actual payments Underpayment penalty No No Yes Yes