What is lockharts built-in gains tax in 2013

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Reference no: EM13191801

Lockhart Corporation is a calendar-year corporation. At the beginning of 2013, its election to be taxed as an S corporation became effective. Lockhart Corp.'s balance sheet at the end of 2012 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation):

Asset

Adjusted Basis

FMV

Cash

$ 35,000

$ 35,000

Accounts receivable

   25,000

  25,000

Inventory

 180,000

  210,000

Land

  125,000

  120,000

Totals

$365,000

$390,000

Lockhart's business income for the year was $65,000 (this would have been its taxable income if it were a C corporation).

1. During 2013, Lockhart sold all of the inventory it owned at the beginning of the year for $250,000. What is its built-in gains tax in 2013? Be sure to show your work.

2. Assume the same facts as in part (1), except that if Lockhart were a C corporation, its taxable income would have been $17,000. What is its built-in gains tax in 2013? Be sure to show your work.

3. Assume the original facts except the land was valued at $115,000 instead of $120,000. What is Lockhart's built-in gains tax in 2013? Be sure to show your work.

Reference no: EM13191801

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