SEC Corporation Has Been Operating as a C Corporation Since

question 22

Essay

SEC Corporation has been operating as a C corporation since 2014.It elected to become an S corporation,effective January 1,2017.On December 31,2016,SEC reported a net unrealized built in gain of $60,000.In addition to other transactions in 2017,SEC sold inventory it owned at the beginning of 2017 (it did not sell any other assets it owned at the beginning of 2017).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 2017,its taxable income would have been $100,000.How much built-in gains tax must SEC pay in 2017?

---

Definitions:

Common Stockholders' Equity

The portion of a company's equity that is attributable to common stock owners, calculated as total equity minus preferred stock equity.

Prior Period Adjustments

Corrections made to a company's financial statements for errors or omissions in previously reported periods.

Revaluation Surplus

The increase in value of an asset, reflected in the company's financial statements, from re-assessing its carrying value to a higher current market value.

Treasury Stock

Shares that were issued and then repurchased by the issuing company, reducing the amount of outstanding stock on the open market.