MWC Is a C Corporation That Uses the Accrual Method

question 44

Essay

MWC is a C corporation that uses the accrual method of accounting.MWC made an S election, effective January 1 of 2019.The following assets were owned by MWC on December 31, 2018.
$\begin{array}{lccc} &\text { Fair Market } & \\& \text { Value } & \text { Adjusted } \\ \quad\quad\quad\quad\quad\text { Asset } & \text { (FMV) } & \text { basis (AB) } \\\text { Cash } & \$ 40,000 & \$ 40,000 \\\text { Accounts receivable } & 15,000 & 15,000 \\\text { Inventory (FIFO) } & 20,000 & 25,000 \\\text { Land } & \underline{ 125,000 }& \underline{100,000} \\\text { Total } & \$ 200,000 & \$ 180,000 \\\hline\end{array}$
What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2019?

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Definitions:

Cash Receipts

The total amount of money, including cash, checks, and credit card payments, received by a business during a specific period.

Cash Payments

Cash Payments are transactions wherein monetary exchange occurs through the transfer of physical currency or electronic equivalents for goods, services, or debts.

Flexible Budgeting

A budgeting process that adjusts for changes in the volume of activity, allowing companies to create more accurate budget estimates based on actual performance.

Direct Labor

The cost of wages for employees who are directly involved in the production of goods or services.