16-87complete.docx - 87 XYZ is a calendar-year corporation...

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87. XYZ is a calendar-year corporation that began business on January 1, 2017. For 2017,it reported the following information in its current year audited income statement. Notes with important tax information are provided below. Required:a.Reconcile book income to taxable income and identify each book-tax difference as temporary or permanent.b.Compute XYZ’s regular income tax liability.c.Complete XYZ’s Schedule M-1.d.Complete XYZ’s Form 1120, page 1 (use 2016 form if 2017 form is unavailable). Ignore estimated tax penalties when completing the form.e.Compute XYZ’s alternative minimum tax, if any.f.Complete a Form 4626 for XYZ (use 2016 version if 2017 is unavailable).g.Determine the quarters for which XYZ is subject to underpayment of estimated taxes penalties (see estimated tax information below).XYZ corp. Book to TaxIncome statement BookAdjustmentsTaxable For current yearIncome(Dr.)Cr.IncomeRevenue from sales$40,000,000Cost of Goods Sold(27,000,000)Gross profit$13,000,000Other income:Income from investment in corporate stock300,0001Interest income20,0002Capital gains (losses)(4,000)Gain or loss from disposition of fixed assets3,0003Miscellaneous income50,000Gross Income$13,369,000Expenses:Compensation(7,500,000)4Stock option compensation(200,000)5Advertising(1,350,000)Repairs and Maintenance(75,000)Rent (22,000)Bad Debt expense(41,000)6
Depreciation(1,400,000)7Warranty expenses(70,000)8Charitable donations(500,000)9Meals and entertainment(18,000)Goodwill impairment(30,000)10Organizational expenditures(44,000)11Other expenses(140,000)12Total expenses($11,390,000)Income before taxes$1,979,000Provision for income taxes(720,000)13Net Income after taxes$1,259,00014Notes:1.XYZ owns 30% 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 forthe 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 2014) that was used to fund public activities, $7,000 was from a Tacoma City bond (issued in 2014) used to fund private activities, $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 (that is, it does not qualify as §1231 gain).4.

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