XYZ is a calendar-year corporation that began business on January 1, 2022. 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 Book Income 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 300,0001 Interest income 20,0002 Capital gains (losses) (4,000) Gain or loss from disposition of fixed assets 3,0003 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 (all from restaurants) (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 (400,000)13 Net Income after taxes $ 1,579,000 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'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. 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. This gain is from equipment that XYZ purchased in February and sold in December (i.e., it does not qualify as §1231 gain). This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation). This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers). XYZ 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. XYZ made $500,000 of cash contributions to charities during the year. 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. XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes. The other expenses do not contain any items with book–tax differences. 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 2021 and that in 2021 it reported a tax liability of $500,000. During 2022, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end Cumulative taxable income (loss) First $ 400,000 Second $ 1,100,000 Third $ 1,400,000

XYZ is a calendar-year corporation that began business on January 1, 2022. 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 Book Income 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 300,0001 Interest income 20,0002 Capital gains (losses) (4,000) Gain or loss from disposition of fixed assets 3,0003 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 (all from restaurants) (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 (400,000)13 Net Income after taxes $ 1,579,000 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'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. 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. This gain is from equipment that XYZ purchased in February and sold in December (i.e., it does not qualify as §1231 gain). This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation). This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers). XYZ 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. XYZ made $500,000 of cash contributions to charities during the year. 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. XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes. The other expenses do not contain any items with book–tax differences. 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 2021 and that in 2021 it reported a tax liability of $500,000. During 2022, XYZ determined its taxable income at the end of each of the four quarters as follows: Quarter-end Cumulative taxable income (loss) First $ 400,000 Second $ 1,100,000 Third $ 1,400,000

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter18: Accounting For Income Taxes

Section: Chapter Questions

Problem 4E: Single Temporary Difference: Multiple Rates At the end of 2019, Fulhage Company reported taxable...

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XYZ corporation Income statement For current year	Book Income
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	300,000¹
Interest income	20,000²
Capital gains (losses)	(4,000)
Gain or loss from disposition of fixed assets	3,000³
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 (all from restaurants)	(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	(400,000)¹³
Net Income after taxes	$ 1,579,000

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'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.
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.
This gain is from equipment that XYZ purchased in February and sold in December (i.e., it does not qualify as §1231 gain).
This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation).
This amount is the portion of incentive stock option compensation that was expensed during the year (recipients are officers).
XYZ 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.
XYZ made $500,000 of cash contributions to charities during the year.
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.
XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes.
The other expenses do not contain any items with book–tax differences.
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 2021 and that in 2021 it reported a tax liability of $500,000. During 2022, XYZ determined its taxable income at the end of each of the four quarters as follows:

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

EXHIBIT 16-6 Net Operating Loss Carryback and Carryover Summary*
Tax Year NOL Originated
Beginning before 2018
Beginning after 2017 and before 2021
Carrybacks
Back two years.** Can offset 100% of taxable income before the
NOL deduction in carryback years.
Carried forward indefinitely. Can offset up to 100% of taxable
income before the NOL deduction in tax years beginning before
2021. In tax years beginning after 2020, can offset up to 80
percent of taxable income after deducting NOL carryovers from
NOLS originating in tax years beginning before 2018.
Carried forward indefinitely. Can offset up to 80 percent of
taxable income remaining after deducting NOL carryovers from
NOLS originating in tax years beginning before 2018.
*In certain situations, when a corporation with a NOL experiences an "ownership change," the NOL deduction may be limited beyond the restrictions described in this exhibit. (see $382). A discussion of these rules are beyond the scope of this text.
*A corporation can elect to forgo the NOL carryback and simply carry the NOL forward to future years. Also, if a corporation carries back a NOL, it must carry it back to the earliest year first (i.e., two years prior or five years prior, depending on the year the NOL originated).
Beginning after 2020
Back five years.** Can offset up to 100% of taxable income
before the NOL deduction in carryback years.
Carrybacks
Forward 20 years. Can offset 100% of taxable income before the
NOL deduction.
Not allowed.

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