Mock Corporation Converts to S Corporation Status in 2019

question 8

Multiple Choice

Mock Corporation converts to S corporation status in 2019. Mock used the LIFO inventory method in 2018 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock's 2018 corporate tax liability, assuming that Mock is subject to a 21% tax rate.

• A) $0
• B) $6,038
• C) $24,150
• D) $115,000

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Definitions:

Straight-Line Method

A method of calculating depreciation of an asset, which spreads the cost evenly across its useful life.

Units-of-Activity Method

A depreciation method that allocates costs based on the actual usage or output of the asset rather than time.

Depletion Cost

The allocation of the cost of natural resources, such as minerals or oil, over the period they are extracted and sold.

Units Extracted

The quantity of resources, such as minerals or oil, removed from the ground or source.