SEC Corporation Has Been Operating as a C Corporation Since

question 79

Essay

SEC Corporation has been operating as a C corporation since 2016.It elected to become an S corporation, effective January 1, 2019.On December 31, 2018, SEC reported a net unrealized built-in gain of $60,000.In addition to other transactions in 2019, SEC sold inventory it owned at the beginning of 2019 (it did not sell any other assets it owned at the beginning of 2019).At the beginning of the year, the inventory it sold had a fair market value of $30,000 and a FIFO tax basis of $10,000.SEC sold the inventory for $35,000.If SEC had been a C corporation in 2019, its taxable income would have been $100,000.How much built-in gains tax must SEC pay in 2019?

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Definitions:

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Agricultural Activities

Operations involved in the cultivation of land, raising and managing livestock, and growing crops, intended for the production of food and raw materials.

AASB 141

AASB 141 refers to the Australian Accounting Standards Board's standard on Agriculture, outlining how to account for agricultural activities in financial statements.

IAS 41

An International Accounting Standard that deals with agriculture, guiding the accounting for agricultural activity.