[The following information applies to the questionsdisplayed below.]fNotes with important taxinformation are provided below

XYZ is a calendar-year corporation that began business onJanuary 1, 2017. For 2018, it reported the following information inits current year audited income statement. Notes with important taxinformation are provided below. 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:

1. XYZ owns 30 percent of the outstanding Hobble Corp. (HC) stock.Hobble Corp. reported $1,000,000 of income for the year. XYZaccounted for its investment in HC under the equity method and itrecorded its pro rata share of HC's earnings for the year. HC alsodistributed a $200,000 dividend to XYZ.
2. Of the $20,000 interest income, $5,000 was from a City ofSeattle bond (issued in 2017), $7,000 was from a Tacoma City bondissued in 2015, $6,000 was from a fully taxable corporate bond, andthe remaining $2,000 was from a money market account.
3. This gain is from equipment that XYZ purchased in February andsold in December (i.e., it does not qualify as §1231 gain).
4. This includes total officer compensation of $2,500,000 (no oneofficer received more than $1,000,000 compensation).
5. This amount is the portion of incentive stock optioncompensation that vested during the year (recipients areofficers)
6. XYZ actually wrote off $27,000 of its accounts receivable asuncollectible.
7. Tax depreciation was $1,900,000.
8. In the current year, XYZ did not make any actual payments onwarranties it provided to customers.
9. XYZ made $500,000 of cash contributions to qualified charitiesduring the year.
10. On July 1 of this year XYZ acquired the assets of anotherbusiness. In the process it acquired $300,000 of goodwill. At theend of the year, XYZ wrote off $30,000 of the goodwill asimpaired.
11. XYZ expensed all of its organizational expenditures for bookpurposes. It expensed the maximum amount of organizationalexpenditures allowed for tax purposes.
12. The other expenses do not contain any items with book-taxdifferences.
13. This is an estimated tax provision (federal tax expense) forthe year. Assume that XYZ is not subject to state incometaxes.

Estimated tax information:

XYZ made four equal estimated tax payments totaling $480,000.Assume for purposes of estimated tax penalties, assume XYZ reporteda tax liability of $800,000 in 2017. During 2018, XYZ determinedits taxable income at the end of each of the four quarters asfollows:

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 purposesof estimated tax calculations. (Do not round intermediatecalculations. Round your answers to the nearest dollaramount.)

a. Compute XYZ’s taxable income.

ANSWER FOR A IS 1,868,360

b. Compute XYZ’s income tax liability.