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XYZ is a calendar$-$year corporation that began business on January $1,2024.$ 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 yearBook IncomeRevenue from sales$ $40,000,000$Cost of Goods Sold$(27,000,000)$Gross profit$ $13,000,000$Other income:$$Income from investment in corporate stock$300,0001$Footnote $1$Interest income$20,0002$Footnote $2$Capital gains $($losses$)(4,000)$Gain or loss from disposition of fixed assets$3,0003$Footnote $3$Miscellaneous income$50,000$Gross Income$ $13,369,000$Expenses:$$Compensation$(7,500,000)4$Footnote $4$Stock option compensation$(200,000)5$Footnote $5$Advertising$(1,350,000)$Repairs and Maintenance$(75,000)$Rent expense$(22,000)$Bad Debt expense$(41,000)6$Footnote $6$Depreciation$(1,400,000)7$Footnote $7$Warranty expenses$(70,000)8$Footnote $8$Charitable donations$(500,000)9$Footnote $9$Meals$(36,000)$Goodwill impairment$(30,000)10$Footnote $10$Organizational expenditures$(44,000)11$Footnote $11$Other expenses$(140,000)12$Footnote $12$Total expenses$ $(11,408,000)$Income before taxes$ $1,961,000$Provision for income taxes$(400,000)13$Footnote $13$Net Income after taxes$ $1,561,000$

$1$Footnote $1$XYZ owns $30\%$ of the outstanding Hobble Corporation $($HC$)$ stock. Hobble Corporation reported $$1,000,000$ of income for the year. XYZ accounted for its investment in HC under the equity method, and it recorded its pro rata share of HC$\text{'}$s earnings for the year. HC also distributed a $$200,000$ dividend to XYZ$.$ For tax purposes, XYZ reports the actual dividend received as income, not the pro rata share of HC$\text{'}$s earnings.

$2$Footnote $2$Of 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.

$3$Footnote $3$This gain is from equipment that XYZ purchased in February and sold in December $($i$.$e$.,$ it does not qualify as $1231$ gain$).$

$4$Footnote $4$This includes total officer compensation of $$2,500,000($no one officer received more than $$1,000,000$ compensation$).$

$5$Footnote $5$This amount is the portion of incentive stock option compensation that was expensed during the year $($recipients are officers$).$

$6$Footnote $6$XYZ actually wrote off $$27,000$ of its accounts receivable as uncollectible.

$7$Footnote $7$Tax depreciation was $$1,900,000.$

$8$Footnote $8$In the current year, XYZ did not make any actual payments on warranties it provided to customers.

$9$Footnote $9$XYZ made $$500,000$ of cash contributions to charities during the year.

$10$Footnote $10$On 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.

$11$Footnote $11$XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes.

$12$Footnote $12$The other expenses do not contain any items with book$$tax differences.

$13$Footnote $13$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 $$360,000($$$90,000$ per quarter$).$ For purposes of estimated tax liabilities, assume XYZ was in existence in $2023$ and that in $2023$ it reported a tax liability of $$500,000.$ During $2024,$ XYZ determined its taxable income at the end of each of the first three quarters as follows:

Quarter$-$endCumulative taxable income $($loss$)$First$ $400,000$Second$ $1,100,000$Third$ $1,400,000$

Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations.

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