In: Accounting
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. | Book Income |
||
Income statement | |||
For current year | |||
Revenue from sales | $ | 40,000,000 | |
Cost of Goods Sold | (27,000,000 | ) | |
Gross profit | $ | 13,000,000 | |
Other income: | |||
Income from investment in corporate stock | 300,000 | 1 | |
Interest income | 20,000 | 2 | |
Capital gains (losses) | (4,000 | ) | |
Gain or loss from disposition of fixed assets | 3,000 | 3 | |
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 | )6 | |
Depreciation | (1,400,000 | )7 | |
Warranty expenses | (70,000 | )8 | |
Charitable donations | (500,000 | )9 | |
Meals | (18,000 | ) | |
Goodwill impairment | (30,000 | )10 | |
Organizational expenditures | (44,000 | )11 | |
Other expenses | (140,000 | )12 | |
Total expenses | $ | (11,390,000 | ) |
Income before taxes | $ | 1,979,000 | |
Provision for income taxes | (720,000 | )13 | |
Net Income after taxes | $ | 1,259,000 | 14 |
Notes:
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 | Cumulative taxable income (loss) | ||
First | $ | 350,000 | |
Second | $ | 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.)
computer XYZ's taxable income ?
$ 392356 was not correct answer.
Compute XYZ’s taxable income.
Description |
Book |
Book-tax adjustments |
Taxable Income (Dr) Cr |
||||||||||
(Dr) |
Cr |
||||||||||||
Revenue from sales |
$ |
40,000,000 |
$ |
40,000,000 |
|||||||||
Cost of Goods Sold |
(27,000,000 |
) |
(27,000,000 |
) |
|||||||||
Gross profit |
$ |
13,000,000 |
$ |
13,000,000 |
|||||||||
Other income: |
|||||||||||||
Income from investment in corporate stock |
300,000 |
1 |
(100,000 |
) |
[T] |
200,000 |
|||||||
Interest income |
20,000 |
(12,000 |
) |
[P] |
8,000 |
||||||||
Capital gains (losses) |
(4,000 |
) |
4,000 |
[T] |
0 |
||||||||
Gain on fixed asset dispositions |
3,000 |
3,000 |
2 |
||||||||||
Miscellaneous income |
50,000 |
50,000 |
|||||||||||
Gross Income |
$ |
13,369,000 |
$ |
13,261,000 |
|||||||||
Expenses: |
|||||||||||||
Compensation |
(7,500,000 |
) |
(7,500,000 |
) |
|||||||||
Stock option compensation |
(200,000 |
) |
200,000 |
[P] |
0 |
||||||||
Advertising |
(1,350,000 |
) |
(1,350,000 |
) |
|||||||||
Repairs and Maintenance |
(75,000 |
) |
(75,000 |
) |
|||||||||
Rent |
(22,000 |
) |
(22,000 |
) |
|||||||||
Bad debt expense |
(41,000 |
) |
14,000 |
[T] |
(27,000 |
) |
|||||||
Depreciation |
(1,400,000 |
) |
(500,000 |
) |
[T] |
(1,900,000 |
) |
||||||
Warranty expenses |
(70,000 |
) |
70,000 |
[T] |
0 |
3 |
|||||||
Meals |
(18,000 |
) |
9,000 |
[P] |
(9,000 |
) |
|||||||
Goodwill impairment |
(30,000 |
) |
20,000 |
[T] |
(10,000 |
)4 |
|||||||
Organizational expenditures |
(44,000 |
) |
36,400 |
[T] |
(7,600 |
)5 |
|||||||
Other expenses |
(140,000 |
) |
(140,000 |
) |
|||||||||
Federal income tax expense |
(720,000 |
) |
720,000 |
[P] |
0 |
||||||||
Total expenses before charitable contribution, NOL, and DRD |
(11,610,000 |
) |
(11,040,600 |
) |
|||||||||
Income before charitable contribution and DRD |
$ |
1,759,000 |
$ |
2,220,400 |
|||||||||
Charitable contributions |
(500,000 |
) |
277,960 |
[T] |
(222,040 |
)6 |
|||||||
Taxable income before DRD |
$ |
1,998,360 |
|||||||||||
Dividends received deduction (DRD) |
(130,000 |
) |
[P] |
(130,000 |
)7 |
||||||||
Domestic Production activities deduction | (90,000 | ) | [P] | (90,000) | |||||||||
Book/Taxable income |
$ |
1,259,000 |
(832,000 |
) |
1,351,360 |
$ |
1,778,360 |
||||||
XYZ’s income tax liability is $373,456 ($1,778,360 × 21%).
*[T] reflects temporary book-tax differences and [P] reflects permanent book-tax differences.
Explanation:
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